It pays off to plan mortgage renewal

The answer to rising interest rates if you're renewing a mortgage or buying a home is to fight back using every trick in the book.

Five-year mortgage rates recently hit a six-year high, and variable-rate mortgages could start moving up as soon as next month. Housing prices are so high these days that even a quarter-point of extra interest could cost you hundreds of dollars a year and, thousands over the term of a mortgage.

Avoiding the impact of rising rates altogether is pretty much impossible, but you can limit your exposure to a surprising extent if you put these four simple tricks to use.

  1. If you're in the market for a home or face a renewal in the months ahead, get a rate guarantee immediately.

    A rate guarantee locks in the best rate you can secure right now for a preset period of time and protects you no matter how much rates rise. Mark Olkowski, a mortgage broker with the firm Invis, said lenders will reserve an interest rate for 120 days in most cases and, if not, for 90 days. However, longer guarantees may be possible. Real estate agents and mortgage brokers in Calgary and Toronto have been advertising that they can get their customers 180-day rate guarantees.

    Given that more increases for fixed-rate mortgages are possible in the months ahead, it's a no-brainer move to contact a lender or mortgage broker and lock in a rate. If you're planning to buy, get a rate commitment even before you start looking.

    When renewing a mortgage, don't wait for the bank to contact you with one of those perfunctory notices sent by mail. If you do, you'll probably find that you have only a short time until the renewal date and are therefore hostage to the mortgage rates of the moment.

    Rate guarantees apply to fixed-rate mortgages, of course. Variable-rate mortgages are priced off the prime rate, which in turn is pegged to the Bank of Canada's overnight rate. The pertinent issues with a variable-rate mortgage is the size of the discount off the prime, and the size of the discount you get if you use your option to switch to a fixed-rate mortgage.

  2. Non-bank lenders are slower to raise rates.

    "Whenever there's a rate increase, the banks usually move first," Mr. Olkowski said. "A lot of the non-bank entities will take a wait-and-see attitude -- this is how they book a lot of their business."

    A mortgage broker can shop the market for you to find lenders who are holding off on matching the banks on the latest mortgage increase. Alternatively, use an up-to-the-minute data provider like Move quickly, though, because the gap between the banks and their competitors may not last more than a day or two.

  3. Shop for rates more carefully than you ever have before.

    The range in mortgage rates between lenders these days is incredible. At the end of last week, rates for five-year mortgages ranged as high as 7.29 per cent at some banks to as little as 5.39 at a couple of regional credit unions. In between were such players as ICICI Bank of Canada at 5.5 per cent, Dundee Bank of Canada at 5.59 per cent and ING Direct at 5.79 per cent. ING and ICICI are foreign-owned online banks, while Dundee is accessible through investment advisers.

    Your bank might be willing to match these low rates, so ask. If you strike out, try a mortgage broker. A quick online survey of brokers late last week turned up five-year rates as low as 5.49 per cent, but more typically at 5.69 per cent.

  4. Exploit other avenues for shaving your mortgage rate.

    At the mortgage broker Invis, the interest rates posted on its website are for what Mr. Olkowski describes as "Joe Consumer." You may be able to do a little bit better if you have lots of liquid assets to act as security on your loan or if you have a sterling credit file.

    Another way to push a rate a bit lower is to take a stripped-down mortgage that lacks features such as generous prepayment privileges. If you're one of the many people who never make a lump-sum payment against your mortgage principal, this is worth looking at. Mr. Olkowski said you can also save on your rate if you're willing to have a rate guaranteed for less than the typical 90 to 120 days.

    Your bank may also be willing to provide a lower rate if you agree to sign up for a particular product or if you bring over your registered retirement savings plan. If you want to save on rates, try every trick in the book.

Cheapest five-year mortgage rates

Lowest rates:
Key Savings & Credit U. 5.390
First Calgary Savings 5.390
Virtual One Credit Union 5.440
ICICI Bank Canada 5.500
Dundee Bank of Canada 5.590
So-Use Credit Union 5.600
AMA Financial 5.640
ResMor Trust 5.690
GMAC Residential Funding 5.690
Steinbach Credit Union 5.700
Manulife Bank 5.700
Macquarie Financial Ltd. 5.710


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