Early this week, an email came across my Blackberry with a link to an article that discussed how 2 out of 3 Canadians neglect to shop around for a better price/product when their mortgage comes up for renewal. At first, I was not surprised by this stat. After all, it is very common knowledge that banks PURPOSELY send out renewal offers with a much higher interest rate than is available in the market. Reason? OVER 85% OF PEOPLE SIMPLY SIGN IT AND RETURN IT WITHOUT KNOWING ANY BETTER! Therefore it would make sense for such a stat to come to fruition – just not sure why it took so long for someone to do the research and actually create a statistic out of it.
This email continued to haunt me for the next few days. I kept wondering why I couldn't take my mind away from it when, as I have already told you, I was not taken back by it. However the more and more I continued to think about it, the more and more it continued to eat away at me.
How can people be so naive and, for lack of a better word, lazy?! The article went on to explain how, on average, renewal offers are anywhere from a half, to three quarters of a percentage point HIGHER than what is available on the street! Using simple interest alone, this would cost someone with a $300,000 balance over $11,000 over their 5 year term! And all they had to do was pick up the phone and call their friendly neighbourhood mortgage broker.
If someone told me that by making one phone call I could save $11,000, you couldn't find me a phone fast enough! Now, I don't consider myself that much different from the average mortgage consumer, so I have been racking my brain trying to figure out why two-thirds of Canadians are still just signing and renewing? The conclusion I have come up with is that there has to be some major misconceptions out there, combined with a major lack of knowledge and understanding.
One of the common misconceptions I have heard is that there is a cost to switching your mortgage. This "cost" that people are referring to is a provincially legislated discharge fee of $75 (although I have seen many banks include their own "admin" fees in here so that the discharge total is $300). So, I just said I could save you $11,000 for making a phone call, but it's going to cost you $300 to do – NO BRAINER! Misconception number one, tackled!
Another common excuse I have heard is that it takes a lot of work to shop your mortgage around, and you have to get all that paperwork together again, and blah blah blah. Yes, you will have to gather up some paper work again, but is it not worth investing a couple hours of your time in order to save $11,000?! Take this $11,000 and invest it in to your child's RESP, come back to me in 20 years and tell me it wasn't worth the couple hours of your time. I dare you! Plus, if you're working with your friendly neighbourhood mortgage broker, he or she will do everything in their power to make this process as easy as possible, AND do all the shopping around for you! Heck, if you're working with me, these 'couple hours' will be the most fun couple hours you've had in a long time! Ok maybe not, but it will definitely be more fun than hanging out at home and watching Friends re-runs…
I hope you've received the message I've been attempting to portray here. SHOP AROUND AT RENEWAL! The savings could be VERY lucrative.