Tips for Renewing a Mortgage

When I bought my house at age 24 I was clueless about mortgages. I walked into my bank and asked for a mortgage. I was so amazed when they said yes that I agreed to all the banks conditions, without any negotiation. With increased age has come increased wisdom about financial topics, like mortgages.

So if you are in the process of renewing your mortgage then here is my method that can save you money. I recommend that you do this yourself, but if you feel uncomfortable with negotiating then seek the services of an independent mortgage broker.

  1. I suggest that you go with a variable rate mortgage. A variable rate will save you money, there has been lots of research to back this up and historically a variable rate has always outperformed a fixed mortgage. Read more about fixed vs variable mortgage on MoneySense.
  2. Next find out what rates are available, there are web sites that have done all the work for you, I like the type that provides a list of current rates, with out selling you anything. Print out the list and highlight the low entries for the type of mortgage you want. There may be special lenders that you might not qualify for, so look for banks and credit unions in your area.
  3. Next head into your current bank/mortgage lender a month or two before your current mortgage comes up for renewal. They will have sent a letter offering to renew your mortgage at their current posted rates. This is their first offer, it is time to make your initial counter offer.
  4. Dream big. Ask for a fully open variable rate mortgage with the lowest discount from the rate list you printed and highlighted, which you should now also place on your account managers desk.  Once in 5 negotiations have I actually gotten my bank to take this offer.  A five year open variable mortgage at -0.75%, in the middle of the last recession I was paying 1.5% on my mortgage! The reason I open big is it starts the bank in the uncomfortable position of having to tell a client NO.
  5. At this point I suggest withdrawing your request for open variable and ask for a closed variable at the same low rate you started with. If you are a reasonably good client of your bank, then they should match the rate you found.
  6. If your bank still has not agreed to your offer then you have a few options to try. Remember to always keep calm and remain respectful as you lay out your arguments.
    1. Sell the bank the your future self. The future you has large amounts of savings and investments – from a new job or an inheritance. The future you will need some place to keep all your savings and investments. Your bank likes the future you, so they are willing to give the present you a break to keep you around.
    2. You can play hardball, threatening to take all your business, along with your mortgage, to a new institution. I only suggest doing this if you are actually going to follow through. This might get the bank to agree to mortgage rate demands in order to keep your other accounts.
    3. If they are offering you a rate just above what you wanted, see if they are willing to throw in some extras to make up the difference. Refund bank fees, waive annual credit card fees or upgrade you, at no cost, to their VIP banking service. I have actually gotten more refunds then what I lost by a slightly higher rate.
  7. At this point if your current lender still won’t agree to your demands then it is time to find a lender who will.  You already have a list of banks or credit unions to check out, some with better mortgage rates then you were offered. It is more work but a lower rate will save you money.
  8. Final tip, stay away from any mortgage gimmicks. This includes low introductory rates, which won’t save you money in the long run.

I hope these work for you as well as they have for me. Put your results and other tips in the comments below.