The focus of this week article is fair play. The practice of rate discounting was supposed to be a secret brought out by a particular bank in the mid ‘80s. It has been instrumental at giving our big banks massive profits over the years. For the Consumer though, buyer beware!

Jan & Dean ( not the singers of the 60's) have owned a home for 8 years. They have renewed their traditional bank (one year term) mortgage 7 consecutive times. The first few years, they simply signed the renewal document, attached the renewal fee & sent back the forms. After reading one of my articles 3 years ago, Dean began calling the lender to negotiate a better rate than the lender had proposed on the renewal agreement and further negotiated to avoid the renewal fee. He finds it increasingly difficult to understand why his bank makes him negotiate when any new client to that bank automatically gets a lower rate. He finds it ironic that his own bank will discount mortgage rates to a new (unproven) client while he and his wife who have never missed a payment, must negotiate to get a lower rate.

The simplistic answer to the phenomena is the old adage "Consumer Beware". If the mortgage lender can get a renewal signed at the posted rate (and a majority of renewals are at the posted rate), the more profit for the bank. Dean called me to ask if there was a lender who would automatically send out the renewal at a discounted rate. I said yes, there is one particular bank who sends out their renewals at a discounted rate; but ideally, one should shop the marketplace each time a renewal is offered. By checking your Ottawa Sun each weekend or my web-site, you can gain access to the best rates available. There is no need to call up your present lender to negotiate, when a new lender would be more than happy to receive you mortgage application. You will be subjected initially to prove income, etc. but to get a rate that is .75% lower than posted is worth your time. By changing lenders every renewal, you are single-handedly keeping the system honest. Maybe then all lenders will eventually offer discounted rates automatically to those who make their mortgage payments on time (which is the majority of homeowners). Dean said he can’t be bothered every year to change lenders. I told him with the rates this low, trying to win at the renewal game by taking concurrent one year term mortgages is fruitless. Renew for 5 years, at a full discount and forget it for five years.

At the end of each term, we automatically shop the mortgage market for the best rates for our clients. We get a mortgage commitment 90 days ahead of time, then when our clients get their renewal offer from their present lender, we compare the rates and take the best deal. Most 5 year term mortgages can now be switched to a new lender with no legal or appraisal fees.

If the banking industry is not playing fair, the only way of getting even is to shop your mortgage renewal every 5 years!