How to negotiate mortgage rates | IG Wealth Management

Did you know you might be able to negotiate a better mortgage rate with your bank? Most people mistakenly believe that when they receive their mortgage renewal offer, they must either accept it or switch lenders.

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While switching lenders should always be an option worth considering, many mortgage lenders send out standard renewal offers that may not take into account your specific situation. Most mortgage renewal proposals are up for discussion, you just need to know the best way to go about it. 

Why many people automatically renew their mortgage with the same lender

Most of us don’t have to think about mortgages except when we’re buying a new home or renewing our mortgage contract. Not surprisingly, then, it’s easy to feel that we have to accept the terms and mortgage interest rates offered to us when it comes time to renew. Many people don’t realize they can negotiate mortgage rates with their lender.

There is a wide selection of mortgage lenders out there, all vying for your business. If you have steady income and a decent credit rating, you may be able to find a lender willing to offer you a better deal.

Another reason many people accept their lender’s first offer is for the convenience. In many instances, you don’t have to do anything — your mortgage will be automatically renewed, with the terms and mortgage interest rate that your bank has offered. This could be an extremely costly convenience, however.

Others think that it will cost too much to switch lenders. And there can be several fees that you’ll need to pay to switch lenders:

  • Appraisal costs – sometimes required but often waived or unnecessary
  • Assignment fee – to transfer the mortgage from the old lender to the new one
  • Discharge fee – to register the new mortgage
  • Legal fees – to sign a new mortgage agreement

While this can seem like a lot, many lenders will cover some of the costs if you switch your mortgage to them. For example, IG currently offers new mortgage customers $1,000 to cover the cost of switching.1 And, typically, the savings you will make with a new mortgage dwarf these costs.

Reasons why you might accept the mortgage rate from your current lender

If your current lender offers you a very good rate, it would make sense to stay with them. However, Mortgage interest rates offered in renewal letters can be as much as one whole percentage point above what you might find elsewhere (and posted bank rates are always high).

If your income has decreased considerably, you may not qualify for the same mortgage with a new lender. So, while this may prevent you from signing up with a different lender, it shouldn’t stop you from negotiating.

What you could save in mortgage payments by negotiating

Let’s look at some cold, hard numbers, to illustrate just how much you can save by negotiating your mortgage interest rate when you renew. The difference between the bank rate you’re offered and what you could actually get can be as much as 1%. Even a difference of 0.3% (which is often the very least you can get on improving your bank’s offer) can save you thousands. Let’s crunch some numbers:

Mortgage rate offer

Monthly mortgage payments

Total mortgage payments over 5 years

Savings if you negotiate to lowest rate (2.14%)

3.14%

$2,803.03

$168,181

$14,556

2.64%

$2680.21

$160,812

$7,187.60

2.44%

$2631.93

$157,915

$4,290

2.14%

$2560.43

$153,625

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For this example, we use a mortgage of $500,000 with a 20-year amortization (the number of years it will take to pay off the mortgage in full) and a contract term of five years with fixed interest rates. “These rates do not reflect our current rate offering, see https://www.ig.ca/en/home-ownership/rates for our current offers.” 

As you can see, even a nominal difference of 0.3 percentage points (or 30 basis points) can make a big difference to your mortgage payments and save you thousands over the course of a five-year mortgage term. And if you can secure an even better mortgage interest rate, the savings become substantial.

Steps to negotiate mortgage rates

Step 1

When you receive your mortgage renewal letter from your bank, the first step is:  do not ignore it. If you don’t contact your lender to confirm the term and rate you wish to proceed with, you may be automatically renewed into an open mortgage term, which carry significantly higher rates than standard closed-term mortgages.

Step 2

Study the offer thoroughly. Make sure you fully understand:

  • The mortgage rate being offered
  • The period of time the term covers (for example, five years)
  • Prepayment privileges (for example, 15% prepayment per year)
  • The amortization period (the length of time it will take for you to pay off the mortgage)

If you think you may need a shorter term, for example if you’re thinking about moving home in the next couple of years, a five-year term may be too long. If that’s the case, consider signing up for a shorter term. This will have an impact on the rate you can get.

Step 3

To prepare yourself to negotiate mortgage rates, carry out your research with an Internet search for “best mortgage rates + your city/province”. Look at several sites to find the best offers available.

Step 4

Make sure you’re comparing apples to apples and look for mortgages that fit the one described in your renewal letter. For example, if your bank is offering you a five-year fixed rate on your uninsured mortgage, make sure that this is the kind of mortgage that you are comparing it to.

Many mortgage lenders will give their best rates to people who hold insured mortgages. These are mortgages where the borrower had a down payment of less than 20% and so had to take out mortgage insurance. If you don’t have an insured mortgage, make sure you find the best uninsured rates available in your area.

ALSO, and this is very important, be aware that mortgages can have different conditions. Some low-cost lenders won’t allow much in the way of prepayment privileges, for example. Some can also have very high lending criteria (for example, credit scores above 740 and loans to salaried borrowers only, so no self-employed applicants). 

And if you’re considering mortgage refinancing (where you borrow more than your original mortgage amount — typically to set up a line of credit, consolidate debt or pay for home improvements) this will make a difference. Mortgage refinancing rates are usually a little higher than rates for a straightforward renewal.

Step 5

Consider talking to a Mortgage Planning Specialist. They can offer expertise for not only securing the lowest rate possible, but also the important role a mortgage plays in your overall financial plan.

Step 6

Start to negotiate mortgage rates with your lender. Once you’ve found a mortgage with a rate and conditions you like, talk to your financial institution and try and see if they will match it.

Step 7

Clarify the costs involved in switching lenders. Then ask the new lender to cover those costs.

Getting started with a better mortgage rate

An IG Mortgage Specialist can discuss the kinds of mortgages and rates available to you for your particular circumstances, and an IG Consultant can help you integrate your mortgage into your financial plan. Contact us today to get started.

You can see more details on current rates and conditions here.

An IG Consultant can also help you to integrate your mortgage into your financial plan. Contact us today to get started.

1 Minimum mortgage amount of $100,000. Certain conditions apply. For full details contact an IG Mortgage Specialist.

Investors Group Trust Co. Ltd. is a federally regulated trust company and is the mortgagee. Mortgages are offered through I.G. Investment Management, Ltd.* Inquiries will be referred to a Mortgage Planning Specialist (in Ontario, a Mortgage Agent, and in Quebec, New Brunswick and Nova Scotia, a Mortgage Broker).

*In ON and NS, registered as a Mortgage Brokerage (ON 10809, NS 3000240) and a Mortgage Administrator (ON 11256, NS 3000232), in QC, registered as a financial services firm (QC 2400376104) and in NB, registered as a Mortgage Brokerage.

Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Consultant.