Canadian Mortgage Trends: Are Canadians Losing Money at Renewal?
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Canadian Mortgage Trends: Are Canadians Losing Money at Renewal?
Canadian Mortgage Trends (CMT), a prominent news source in Canada’s mortgage industry, recently published an article titled “Borrowers missing out on savings by not negotiating mortgage renewal rates.” This article is important for Canadians, especially those facing renewal payment shock. We have condensed the key advice from the CMT article and included additional tips on negotiating a lower mortgage rate when the time comes for your renewal.
- Studies show Canadians do better at renegotiating to save on their phone bill than their mortgage rate.
- Negotiating can save you thousands of dollars on your mortgage.
- Canadians pay hundreds more on their mortgage payments by sticking with their bank.
Discounts and promotions are increasingly significant for Canadian grocery shoppers. According to a study by Dalhousie University, nearly 30% of Canadians switched their primary grocery store in the past year for better deals. Moreover, almost 60% of Canadians actively seek out discounted food items, particularly those nearing expiration or on clearance. This consumer behaviour contrasts with the scenario faced by individuals renegotiating their mortgage rates. A recent survey and study on mortgage trends by Mortgage Professionals Canada (MPC) revealed that despite higher interest rates, many Canadian homeowners choose not to negotiate when renewing their mortgages.
MPC research found that 41% of borrowers accepted the initial interest rate offered by their lender, up from 37% in the last 2 years. Furthermore, only 8% stated that they negotiated their rate extensively during renewal, a significant drop from the 16% in 2021 who negotiated aggressively. Another survey and study by Leger has shed light on the financial strain experienced by many Canadians with mortgages. A significant 68% indicated some form of financial hardship. This predicament may prompt borrowers to hastily accept the initial renewal offer without exploring potentially more advantageous alternatives.
Robert Jennings of East Coast Mortgage Broker in St.John’s attributes this trend to a combination of factors. He suggests that a lack of awareness among Canadians regarding the flexibility of mortgage rates plays a significant role. Furthermore, Jennings points out that banks have adopted more proactive strategies, contacting clients earlier and often locking them into rates that may not reflect current market conditions. He argues that this leads many homeowners to accept less favourable terms out of fear or uncertainty without realizing that better options may be readily available with a quick phone call.
To tackle this issue, mortgage experts emphasize the importance of making well-informed decisions. They recommend that borrowers conduct thorough research on their options, compare interest rates offered by different lenders, and seek advice from mortgage brokers who can advocate. With the plethora of online tools available for comparing mortgage terms and rates, homeowners now have increased access to valuable information that can help them secure more favourable mortgage rates.
The data shows Canadian homeowners tend to stick with their initial mortgage renewal offers. Still, there is a noticeable increase in negotiation and awareness among those who explore other options. Homeowners must stay informed and proactive to secure the best possible mortgage terms, especially with market fluctuations and financial pressures influencing decisions.
While fixed mortgage rates have been dropping, there is an ongoing discussion about whether fixed or variable rates offer more benefits. Despite the potential savings from finding better rates elsewhere, strict stress test requirements can pose challenges for homeowners looking to switch lenders. Given the ever-evolving mortgage landscape, Canadian homeowners must proactively meet their financial and homeownership goals.
How Can You Prepare to Renegotiate and Maximize Your Mortgage Savings
Boost Your Credit Score
Before beginning the mortgage renewal process, it’s crucial to concentrate on enhancing your financial situation. Begin by examining your credit score at both credit bureaus, as lenders favour borrowers with scores in the 700s showing responsible debt handling. If your score requires improvement, follow these steps:
- Make timely payments by ensuring all bills are paid on time, even if paying a few dollars more than your minimum payment.
- Lowering outstanding balances and accepting auto limit increases on your credit cards can lower your credit utilization ratio.
- Scrutinize your credit reports and look for errors, omissions and inaccuracies that could affect your credit score.
- Understand your credit score by knowing the weighted factors that impact it most significantly.
Calculate Your Mortgage Affordability
Understanding your financial capabilities is crucial. Use a mortgage affordability calculator to find your debt-to-income ratios. All you need to do is divide your household and total monthly debt payments by your gross monthly income. A lower ratio indicates that you have more room to manoeuvre in your budget, particularly regarding expenses other than housing. When assessing affordability, remember that gross debt service (GDS) and total debt service (TDS) ratios are vital in Canadian mortgages.
Shopping Around to Understand and Compare Offers
Don’t accept your lender’s initial renewal rate. Shop around and explore different lenders to find the best deals. Remember that banks often reserve their lowest rates for new customers, so it’s worth considering other options.
Negotiate Boldly
When it’s time to renew, don’t just sit back; learn how to negotiate boldly! Being assertive and bold can save you thousands of dollars on interest-carrying costs over your mortgage term and secure a lower monthly mortgage payment. Research market rates to better understand the current mortgage market. Be ready to switch lenders if you find a more favourable deal elsewhere. Don’t hesitate to challenge your lender or bank if you feel their rates are too high—remember, rates are negotiable!
You Can Save Thousands
When comparing nesto’s 3-year and 5-year fixed mortgage rates to the average rates at Canada’s Big 6 Banks on July 2nd, there was a noticeable difference of nearly 1%. For example, if you have a $500,000 mortgage over a 25-year amortization with nesto’s 3-year fixed rate, your monthly mortgage payment would amount to $2,919.42, potentially saving you $261.80 monthly, resulting in savings of $9,424.80 in interest with an additional $3,684.84 paid-down towards your principal over the term. Similarly, opting for nesto’s 5-year fixed rate would mean a monthly mortgage payment of $2,778.49 on the same mortgage, potentially saving you $235.73 monthly, leading to savings of $14,144.40 in interest and an extra $5,795.79 paid towards your principal over the term.
How much could you save on a variable mortgage with nesto? nesto’s adjustable-rate mortgage (ARM) offers the potential to save you $281.16 per month or $3,236.81 over a 3-year variable mortgage term, resulting in a total interest savings of $10,121.40 and enabling you to pay off an additional $3,361.87 in principal. On the other hand, the 5-year adjustable rate could save you $295.10 monthly or $3,115.39 over the term, resulting in $17,705.40 saved in interest and allowing you to pay down an extra $6,119.49 in principal.
Negotiation is a skill that can significantly impact your long-term financial stability. Understand economic indicators like CPI inflation, which have the most significant impact on the forecast for mortgage rates to save money, find the best renewal rate and stabilize your finances. Missing out on potential savings can add up over time and hinder your ability to build wealth and achieve your financial goals. Therefore, being proactive in negotiating and advocating for yourself is crucial.
Are you shopping around for your mortgage or up for renewal? Reach out to nesto’s mortgage experts to see how to lower your mortgage payment and create a mortgage strategy that uniquely matches your financial circumstances and homeownership goals.
Why Choose nesto
At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.
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