You have a mortgage renewal coming up in six months, and your bank calls you offering you a ‘special rate’ for renewing your mortgage early. They tell you that this is an exclusive offer and that you can save by renewing your mortgage early. They’ll often tell you that if you want to take advantage of this amazing offer, then you’ll have to sign the documents by a certain date, usually a few days to a week away. After that, the offer is off the table.
This is a sales tactic. No one wants to have something taken away, and they know that many will tend to be more attracted to the offer if they think that they might lose it. A child may have a toy sitting in her playpen that she never touches. However, as soon as you go to take it away, she all of a sudden wants it. This is what the banks are doing to you with the early renewal.
They know that the maximum amount of time you can hold a rate during a mortgage switch is 90 days for the most part (with the odd exception at 120 days), so they try to get you locked in at a higher rate before you have chance to shop.
Surprisingly, this is more common when we are in a declining mortgage rate market. Hmmmm. I wonder why?
Unfortunately, there are a large number of homeowners who think they are being offered a great deal… and sign the early renewal at the perceived ‘special’ rate.
Am I saying that you should never sign the early renewal?
Not at all. If the market outlook is for rates to increase over six months, then it might be something you want to consider. But not before checking what else is out there. In a rising rate environment, banks do not seem to be as quick to make these offers.
Where are mortgage rates heading over the next six months?
Earlier in the year, I had stated that we could potentially see 5 year fixed rates in the mid two percent range by summer. The lowest 5 year fixed rate as of today is 2.59%*, so we are pretty much there now. Chances are that we may see rates fall a little further still, so banks have been trying hard to renew mortgages early before further drops occur.
While the Bank of Canada is still looking for opportunities to increase prime rate, I would be surprised if the next move was anything but a rate cut. Will that come during the next rate announcement on July 10th? Possibly, but I think it’s more probable that they will keep it status quo once again. Time will tell of course.
While there has been some positivity in the Canadian economic outlook, there is still too much uncertainty for rates to increase. Particularly surrounding American politics. The US/China trade war does not seem to have an end in sight, The future of the Canada / US / Mexico (CUSMA) is still uncertain. I’d be pretty surprised if we saw an upward trend in mortgage rates anytime soon. For this reason, anyone with a mortgage coming up for renewal in the next six months should be in pretty good shape as far as mortgage rates are concerned.
*5 year fixed rate of 2.59% is based on a minimum of 35% equity in the home. Value of home must be under $1 million OR home must have been purchased prior to November 30, 2016. Primary residence only. Please email or call to find out the lowest rate available for your situation.
Paul Meredith is the author of the Amazon #1 best selling book, Beat the Bank – How to Win The Mortgage Game in Canada, and has ranked as one of the top 75 mortgage brokers in Canada since 2016. He was a finalist for Mortgage Broker of the Year in 2018, and can be seen as the exclusive mortgage broker on season two of TV’s Top Million Dollar Agent.