Playing Hardball with your Bank
A mortgage, for most people, is the biggest debt they every incur; it's also the most important loan that a bank can make. For Canada's top three banks, residential mortgages represent between 40 and 50% of their total loan portfolio and, after credit cards, it's the financial service with the highest rate of return; some banks - like the Royal - have explicitly stated their desire to reduce corporate loans in favour of residential mortgages. In short;
you and your mortgage are important.
Traditionally, homebuyers feel obligated to their own bank, the one that they've been with for 10 or 20 years and with whom they have any number of accounts, but the market has seen the emergence of a new breed of mortgage seekers who shop for mortgages the way they shop for cars. One publishing executive who recently refinanced his mortgage explains his own epiphany. “Interest rates were low and I wanted to refinance. The bank started talking about why it wouldn't be worth it, how all the penalties would outweigh the benefits” ... The stick. Then came the carrot. “After I protested, they offered to reduce the penalty on refinancing, but only if I brought more of my banking business over to them. At this point, I realized they were behaving more like sales people than bankers. So I started treating them like sales people.” After a week of tough negotiations, he extracted lower
penalties for his refinanced mortgage without bringing the bank any new business.
Less gutsy consumers can access lower rates and better terms through a Mortgage Broker. Instead of haggling in person, the homebuyer hires a Broker to shop the banks on their behalf. This is very popular in the US where more than 75% of the Mortgage business is arranged through Brokers. In Canada, the corresponding number is only 26%.
One of the big advantages of using a Broker is protecting your credit rating. Every time you shop a bank, they pull a credit report on you and your score drops a little. Still, if you're a master negotiator, you may want to go solo, as you stand a good change of getting various hidden fees - appraisal, survey, renewal and mortgage transfer fees - eliminated.
The bottom line ... a discount of one percentage point below the posted rate, on a mortgage of $100,000, can save you over $6,000 in interest expenses during a five year term. Making the bank work for your money makes "cents".
by: Matt O’Grady
Published in Vancouver Magazine