One of the realities of having a 25 year mortgage is that it will be split up into smaller terms. Most people will take a 5 year term but you can take a 6 month all the way up to 10 years. Once your specific term is up you are financially obligated to either negotiate new terms with your current lender or pay the mortgage balance off. You can pay it off with cash or by moving it to another lender under their terms and conditions.
The renewal process can be very simple. 90-120 days out from your renewal date your current lender should send you a renewal notice with an offer on what they are willing to provide for length of term and rate. You can simply sign the renewal and your mortgage moves right over to the new terms on the appropriate date. But what people don't realize is that lenders are not obligated to provide you with their best terms and conditions. In fact, in many cases, they do not offer their best rates. They do this because the stats show that a good percentage of people will renew with them and too many of those people will sign the first offer.
Let's take a look at some numbers to see how this benefits the lender. If 6 out of 10 people renew with their current lender, this is low, and 3 of them take the higher rate it can mean big profits for the lender. A 1% higher rate for those 3 people means an extra $1000 for every $100,000 borrowed. Doesn't seem like much until you take it out over the millions of clients that banks have and you can see why it makes financial sense for them. Zero financial cost with a whole lot of financial benefit.
There is a process that you can do to make sure you get the best rate and also product you can. When your term comes up you are free to move to another lender. In most cases there is no cost to you to do this as lenders are willing to cover the legal costs of bringing your mortgage over. This is why you should always shop when your term is up and you need to renew. Some banks are making it harder for you to switch by putting their mortgages in a collateral charge. Just another way to keep you as a customer.
Here is why you should call Your Mortgage Guru. When you call we will look at our dozens of lenders and see where we can put you with the best current rate. We will offer this rate to you in writing which you can take back to your current lender if our rate is lower. Your current lender will either match our rate to keep you there or say no. If they say no we put your application together and move you to the lender with the lower rate. Either way you know you are getting market rates for your new term. If you depend on your current lender to offer you the best rate you will be missing out.
Shopping for rate at renewal time takes more work but is 100% worth it. Worse case scenario we tell you that you are being offered a great rate and you should sign the renewal letter. Best case scenario you save $1,000's in interest by taking some time and making a call.
Your Mortgage Guru
This article is in the category: General.