How you might save thousands on your mortgage renewal
Canadians who switch mortgages and first time home buyers get better deals from bank than existing customers. Shop around and check interest rate comparison web sites.
Canadians are a schizophrenic bunch when it comes to their consumer loyalties.
They have sharp pencils and harsh words when it comes to cell phone contracts, data plans or cut-rate flights and hotel deals. But when it comes to banking, they’re pushovers, a complacent fee-tolerant bunch, happy to get something, but not the best deal that they might.
But your fees are one reason why Canadian banks are so profitable. Last week TD and RBC reported 15 per cent increases in second quarter profit. RBC’s shares hit a new record. TD too.
And in the age of the Internet it’s a costly mistake to be complacent. Shopping around is easy and well worth the effort, if only to be better informed about your options. You’ll also have some ammunition to use with your bank.
Canadians turn to the Big Six banks for everything from basic chequing and savings accounts to credit cards, investment advice and mortgages. Credit unions have a loyal following, though they are stronger in the West than Ontario. The banks lock up their customers with velvet handcuffs, offering bundles and fee packages and cross-selling services. The thought of unbundling is so tiring, many can’t be bothered. The banks profit from that inertia.
“Canadians are used to dealing with the big banks,” says Kelvin Mangaroo, president ofRatesupermarket.ca, an interest rate comparison web site. “The big banks are convenient, Canadians know them and so wherever their parents went, they went.”
That loyalty can pay because you do get a benefit from bundling. You’re also likely to get a break if you ask. If you have a relationship with your banker, he or she can help solve problems. The big banks also offer a wide range of things people want and deliver them conveniently.
A 2011 Bank of Canada study found that existing bank customers don’t get the best deal when they renew a mortgage. People who switch and first-time buyers do. That’s because new customers offer banks an opportunity to sell more products, so they’re eager to bring that new business in. Existing customers assume they’ll get the best deal because of their loyalty and so many don’t bother to shop around. Lacking ammunition, the discount they get is not as much.
Mangaroo says Canadians have been slow adopters of web rate comparison sites. He worked in the U.K. between 2003 and 2008 and was impressed with moneysupermarket.com, an interest rate aggregator that grew so quickly, it went public in 2007. The initial share offering was worth more than $1.5 billion.
Mangaroo brought that model back to Canada and founded Ratesupermarket in 2008. He sold it last year to an American firm which also owns Insurancehotline.com (once owned by the Star’s parent Torstar) and Kanetix.ca. The three sites offer bank and insurance rate comparisons.
Mangaroo says British consumers are far less loyal and more rate conscious than Canadians. So, 70 per cent of Britons use a broker to find the best mortgage rates, while in Canada it is 20 to 30 per cent.
Assuming a $300,000 mortgage, Ratesupermarket’s best 5-year fixed mortgage rate was 2.84 per cent, offered through Butler Mortgage, a broker who will match you to a lender. The cost of that mortgage is $1,395 a month.
The best discounted 5-year fixed mortgage rate offered by a bank was Bank of Montreal at 3.29 per cent. That will cost $1,465 a month.
Taking the lower rate saves $70 a month, $840 a year, or $4,200 over the five years.
“There’s a cost when people don’t shop around,” says Mangaroo. “People call Bell and Rogers and ask for a better deal. They can do that with their financial services too.”
Source Toronto Star by Adam Mayers
Reach personal finance and investing editor Adam Mayers at amayers
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