The below is an article that I came across based on a research study done by Manulife Bank. The study shows that many people are willing to pay more on their mortgages.
Survey Details: The Manulife Bank of Canada polled 1,000 Canadian homeowners between ages 30 to 59 with household income of more than $50,000. The survey was conducted online by Research House between October 25 and November 7, 2011. In a similarly-sized random sample survey, the margin of error would be plus or minus 3.10% at a 95% confidence level. Here’s the full survey.
Manulife recently surveyed 1,000 Canadian homeowners between the ages of 30 to 59. Among respondents with a mortgage, two-thirds (65%) did not compare mortgages from more than one lender when they last renewed.
More specifically:
- 20% stayed with their current lender after maturity and did not negotiate
- 45% stayed with their current lender and tried to negotiate a good deal, but did not shop around
- 35% compared mortgages from several lenders and choose the best overall lender and product.
The youngest group (ages 30-39) was most likely to shop around (41%), but was also most likely to
accept their current lender’s offer without negotiating (24%).
When Doug Conick, President & CEO of Manulife Bank was asked, why on earth people would give so much power to their lender he stated that “most people lead very busy lives and may not have the time or expertise to fully investigate their options”.
“With busy lives and a lack of advice for most, this decision often gets left until very close to the renewal date, causing borrowers to follow the path of least resistance and renew with their current lender.”
“The unfortunate thing,” he added, “is that this could end up costing them a lot of extra money and keep them in debt longer than they need to be.”
That’s for sure.
People who auto-renew often pay 1/2%-3/4% more than necessary, or worse! In fact, thousands of people sign renewal letters at their bank’s “special offer” rate, which is usually well above the market. (Example: Today’s 5-year fixed “special offer” bank rates are 3.94% to 4.09%. Competitive rates from brokers are around 3.49% on a 5 year renewal and we have access to great quick close 30 day rates even less than 3.49%.)
Even a 1/4% rate difference amounts to over $4,000 more in interest over five years, on a $200,000 mortgage with a 20-year amortization. That’s money that could normally go towards prepaying a fat chunk of principal.
It’s hard to fathom why anyone would let a lender pick their pocket like this. At the very least, folks must find it within their strength to lift up the phone and call an independent mortgage planner.
Even if you’d rather stay with your current lender at renewal, seek out a second opinion. You absolutely owe it to yourself to keep your lender honest by surveying the market.
Of course, this all begs the question of why someone would ever want to deal exclusively with a lender that aims to maximize the interest they pay…but that’s a story for another day.
