Switch or Renewal

Switch or Renewal on your brain? With your mortgage renewal is right around the corner, your lender is getting ready to send you the renewal forms. It is a huge milestone. You now have new innovative and competitive rates available to you, all because of your proven track record throughout your term. This is now the perfect time to start looking at the options you may not have had available to you when you initially started looking for a mortgage.
I work with several lending institutions, including credit unions, major banks, trusts, national lenders, and regional lenders. This gives us ( and ultimately you) negotiating power, as they compete for your business, yielding a much better interest rate.

Why You Would Switch Providers?

There are two good reasons why it makes sense to switch providers:

A. To obtain a lower mortgage rate

Most of the time, another lender can offer you a lower mortgage rate than what you’re currently paying. By switching, you would save thousands of dollars in interest charges, freeing up some cash to fund other areas in your life.

For example, let’s say you have a home worth $400,000 and a $315,000 mortgage amortized over 25 years. Your current lender offers to renew you for a 5-year term at a fixed rate of 2.59%. With that, you’ll have a monthly mortgage payment of $1,425, and at the end of this 5-year term you will have paid $37,606 in interest.

However, you decide to shop around and find another lender who offers you a 5-year term at a fixed rate of 2.39%. If you make the switch, your new monthly mortgage payment will be $1,394, and by the end of this 5-year term you will pay only $34,650 in interest.

B. To get better terms and conditions

One of the most important terms and conditions to consider is your prepayment options. A new lender can offer you better prepayment options than your current mortgage provider, switching could help you pay down your mortgage sooner and save you from having to pay additional interest costs.

For example, most lenders allow you to increase your monthly mortgage payment amount once each year, but the amount you can increase it by often varies – depending on the lender.

Let’s say you have a home worth $300,000 with a $215,000 mortgage amortized over 25 years. Your current lender has offered to renew your mortgage at today’s best rate of 3.79%, which results in a monthly mortgage payment of $1,107. By making your regular payments each month for 5 years, you will pay $37,880 in interest.

Your current lender’s prepayment privileges allow you to increase your monthly mortgage payment amount by 10% once per year. If you decide to take advantage of this only once at the beginning of your new 5-year term, your new monthly mortgage payment will go up to:
($1,107monthly payment) x (10.0% payment increase) = $1217.70 new monthly payment

If you make payments of $1,217.70/month for the entire 5-year term, you will pay $37,229.22 in interest. By increasing your monthly mortgage payment amount by 10%, you just avoided having to pay $650.78 in interest.
Now if your new lender allows you to go up by 20% on the same home, the numbers become:
($1,107 monthly payment) x (20.0% payment increase) = $1,328.40 new monthly payment. You’ve now saved $1,303.99 in interest over 5 years.

There are other ways a Mortgage switch can benefit you. The absolute best thing you can do is contact a Mortgage Agent, and have them walk you through the “ins-and-outs” of a Switch or Renewal. There have been many casses where home owners have been paying far to much in interest rates, simply because they didn’t know all of their options. Don’t wait. 

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