A client recently told me their
mortgage
was up for renewal in late January, and earlier that month — maybe four weeks before renewal — they received a mortgage renewal form from their bank, one of the
Big Six
. I was asked which term they should sign off on even though they didn’t like the rates very much.
As it turns out, they had a really good reason to not like the
rates
. The bank was trying to take advantage of them, plain and simple.
Their focus was on a five-year mortgage, either at a fixed or variable rate. They could sign a five-year fixed mortgage for 6.09 per cent or a five-year variable rate mortgage for 4.9 per cent or prime plus 0.45 per cent. This is obscene and let me show you why.
At around the same time, we have a partnership with a bank where our clients can get very good mortgage rates. Not always the very best rate out there, but always a very good rate.
At the time, another client had been offered a five-year fixed rate of 4.04 per cent and a five-year variable rate of 3.75 per cent or prime minus 0.7 per cent. That is 2.05 percentage points lower on the fixed and 1.15 points lower on the variable. That is a shockingly large difference, but let’s take a look at it in dollar terms.
If we assume a $500,000 mortgage, you will be worse off by $63,450 over five years, using a Canadian mortgage calculator at calculator.net. This is made up of $49,270 of extra interest and $14,180 of reduced principal paid down.
But it is worse than that.
Not only are you effectively gifting the bank almost $12,700 a year after tax, but you will also have a higher principal balance after five years. This means you will end up paying more interest going forward because you didn’t pay down the principal further during the five years of the mortgage. It is the gift to the banks that keeps on giving.
The gap on the variable-rate mortgage wasn’t quite as terrible, but it would still likely cost an extra $36,000 over five years.
So, how do you save this $60,000 or so over the course of a five-year fixed mortgage? Apparently, it isn’t that difficult.
I offered to get on a call with my client and their bank. I told them that we are able to help our clients get much better mortgage rates at one of their competitors. I quoted the 4.04 per cent rate that was recently offered to my other client for a five-year fixed-rate mortgage, and the person at the bank mortgage centre said, “Oh, 6.09 per cent is the posted rate; we can do 4.19 per cent.”
Say what? They asked the client to sign off at 6.09 per cent, but one phone call and one question later brought it down to 4.19 per cent?
On one hand, that is great. On the other hand, the bank essentially has told an existing mortgage holder in good standing that it is hoping to screw them over and get them to just sign the renewal form at the “posted rate.”
I then asked if that was the lowest rate they could do. My client was hoping to get 4.04 per cent. The banker’s response was that it was the lowest they were authorized to do, but they would send it to their manager to see what they can do. They informed my client to call back on Monday to find out.
Again, this is a bit shocking. They can’t email them the answer or call them with the answer? Apparently, it is the customer’s job to do all of the legwork.
What have we learned from this?
First, the bank didn’t send a renewal form until less than a month before the mortgage was coming due. This is done to give the bank a couple of advantages. One is that they don’t have to hold a rate for a longer period of time and face any interest rate risk. The other is that by sending it so close to the renewal date, it reduces the customer’s timeline to shop around and move their mortgage to another company.
About four months before your renewal date, it is a good idea to talk to a mortgage broker, your investment adviser or somebody other than your current mortgage provider to do some research into the best rate you can achieve.
Second, once you have a firm or pretty firm rate on your mortgage, reach out to your current mortgage company and let them know that you are shopping the mortgage, but that you will stay if they will match the rate you have been offered elsewhere. This puts you in control and puts pressure on your existing mortgage provider to not mess around with the posted rate.
Third, ideally, your current mortgage provider can meet that good rate or at least get very close. If not and the mortgage is large enough to make it worth the time and money, then move it. This early legwork will allow you the time to move your mortgage without scrambling to do so by the maturity date.
I find the behaviour of the big bank in question to be repulsive. How many Canadians simply sign the renewal forms without asking for a better rate? The bank is taking significant advantage of those who are probably least able to afford the extra $60,000 or so in this example.
Like many financial situations, it pays to be informed and prepared. You can always be nickeled and dimed by the banks, but your mortgage is serious money and it pays to be aggressive and to fight hard for the best rate.
Ted Rechtshaffen, MBA, CFP, CIM, is president, portfolio manager and financial planner at TriDelta Private Wealth,a boutique wealth management firm focusing on investment counselling and high-net-worth financial planning. You can check out their 2026 Canadian Retirement Income Guide through www.tridelta.ca.
