New study spotlights renewals, brokers

mortgage renewalMagnifying glass

According to the Bank of Canada, buyers who stick with their current mortgage lender when it comes time for renewal may be cheating themselves out of a discount.

Data from Discounting in Mortgage Markets, a study conducted by three economists for the Bank of Canada regarding insured mortgages, found that homeowners who switch banks when it comes time to renew their mortgage get better deals than existing customers.

As the Toronto Star puts it, when it comes to mortgage lenders, loyalty doesn't pay off.

"The economists found that people who switch banks get a better deal than existing customers, because new customers offer the banks an opportunity to sell more products," Adam Mayers writes for the news source. "Existing customers assume they will automatically get a better deal because they're loyal, but don't. They don't bother to shop around because they assume they'll get the best rate so, lacking ammunition, the discount may not be much."

Study shows mortgage brokers bring lower rates
In addition to its findings regarding mortgage renewals, the study shows that mortgage brokers find the best mortgage rates.

"Over the full sample the average impact of a mortgage broker is to reduce rates by 17.5 basis points," the study states. "Brokers are a significant factor, therefore, in driving discounts."

The study also shows that first-time homebuyers typically do well when it comes to getting the best rates. Unsurprisingly, first-time buyers are also more likely to use mortgage brokers.

Speaking to the Toronto Star, Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, said that while nearly a quarter of Canadian mortgages are obtained through brokers, this number is much higher with new buyers, reaching 40 percent.

Benefits of mortgage brokers
The reason mortgage brokers are able to obtain lower mortgage rates for homebuyers is simple: It's their job. Mortgage brokers aren't confined to only one lender's products, giving them the freedom to explore all options when it comes to finding financing. Also, since they are part of the industry, mortgage brokers are often privy to financing options that regular borrowers would not be able to obtain or even know about. The networks mortgage brokers use to find home loans can be extensive, giving them many more alternatives when it comes to mortgage than a lending officer at a financial institution.

What's more, mortgage brokers offer a certain level of stress relief to borrowers. Instead of having to deal with the mortgage process on their own, borrowers who use brokers have a professional on their side who can handle the legwork and assist in making the right decision. This can not only result in a better-suited loan and lower mortgage rates, but fewer fees as well.

Other ways to save
Whether buyers use a broker or not, the best way to save is to plan ahead. One way to do this is by using an online mortgage calculator. These tools can give buyers a detailed breakdown of what their mortgage will cost, using information like mortgage amount, interest rate, amortization, payment schedule and term length.

In fact, some calculators can provide details regarding multiple mortgages side by side, giving borrowers the chance to contrast and compare.

By taking the time to understand the true cost of a mortgage, homebuyers will gain a better idea of what they can afford and whether they're getting an affordable deal. When it comes to something as important as a home loan, the more information a buyer can get, the better.

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