Existing homeowners with mortgages coming up for renewal may have a surprise coming their way! Some five or six years ago Consumer Groups fought for and were granted the privilege of offering maturing mortgages to other lenders without incurring costly expenses. Prior to that time, if you wanted to change mortgage lenders you had to pay for an appraisal of the property, legal expenses, and the like. It was similar to applying for a completely new mortgage for the first time, a costly venture! So for the last five or six years, Consumers have waited patiently for the mortgage renewal offer to arrive in the mail. The renewal offer is the piece of paper offering an extension of the existing mortgage at new rates with new payments for varying terms from 6 months to 10 years. You are normally receive this piece of paper at least 30 days before your maturity date. Once in hand, Consumers could do some comparative shopping, or seek to help a local mortgage brokers to do the shopping for them. The mortgage renewal usually offers the lenders "posted" (non-discounted) rates. It was easy to shop since most lenders will chop at least ½ % off the posted rate to get you in the door. Now the surprise!

You may not get a renewal offer this time around. Lending institutions are learning that Consumers do shop! To protect against market loss, lenders are now calling their existing clients to come in for a renewal interview. Once in the door, the Consumer is shown the posted rate, and offered a slight discount, under the pretext of being a "preferred" client. It is my understanding that 1/4 % is standard. The Consumer is asked to make an instant decision. Being in the captive atmosphere of the lenders office makes an informed, educated, comparative decision very difficult.

For those of you caught in this situation, you should know that most "new" lenders will offer you at least 3/4 % off the posted rate [for a three to five year term], and most mortgage brokers can negotiate a 1 % discount, provided your job, income and credit histories are excellent. You should do your shopping prior to your renewal date, although most Consumers waited for the renewal offer as their trigger to get into action. Now that the trigger has been removed, more diligence is required by you to get the best deal. You should also be aware that you need not sign the renewal offer immediately. You should ask for time to make the decision. Even if your term is expiring shortly, once requested, an extension under "interest only guidelines" is easily negotiated for at least one month. Be aware!

What prompted this article is a phone call from Elsie. She is a 60 year old homeowner who was asked to make that instant decision. She was nervous at the time and did not understand the impact of the maturing mortgage (end of term). She knew she had some money coming to her in the immediate future, although she was unaware of how much. The bank’s employee was in a rush to get her to sign so offered a one year term at a 1/4% (preferred Client) discount. Elsie signed two months ago, and now has the money to payoff the balance of the mortgage. She goes to see the same employee who says it will cost her $1000 penalty to pay it off completely because it was a closed one year term mortgage. Elsie should have been offered an open mortgage, but the bank’s employee could not remember whether the offer had been made or not, and Elsie was so nervous that she does not recall either. We asked the bank to back-date the renewal under an open option, which they refused to do. Had Elsie been sent a renewal in the mail, or had been given time to call me first, knowing the situation at hand with the expected money, I would have negotiated the open option on her renewal.