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Monday, December 3, 2012

Giving up the Bank Kool-aid.


December 2, 2012 — Steve Garganis

Big six banksRecently, I’ve had several new clients contact me about getting out of their higher rate BANK mortgage… No surprise here… with interest rates reachingnew all-time lows, it only makes sense to look into this further…
But I’ve noticed a very familiar pattern developing….See if this sounds familiar:
1-First, you hear about these record low fixed rates… maybe online, from a friend, or from one of my current clients…
2- You contact your Bank to see what they can do…
3-Your Banker gives you 2 options… 1- pay an inflated prepayment penalty (BIG SIX BANKS make you pay for any rate discount) and get into a new 5 yr fixed rate of 3.29% (this is the best advertised rate today by a BIG SIX BANK).  OR 2- they’ll blend the penalty into a new mortgage but your rate will be higher… (this never works to your advantage.. there is NO assurance the Bank will offer you the absolute best discounted rate when calculating your new rate.. it’s been a favorite tactic of the Banks for decades…don’t drink this kool-aid… it will cost you $$thousands). 
Most of us will stop right there and go no further…We’ve consumed so much Bank kool-aid that it’s turned us into a flock of sheep… But if you’ve started to become immune to the Bank tactics and want to explore further, then read on…
4- You call a Mortgage Broker, maybe me… you discover that today’s best 5 yr fixed rate is under 3.00%…   (That’s today’s best 5 year wholesale mortgage rate with NO ADDITIONAL RESTRICTIONS OR LIMITATIONS…It’s important to understand this fine point.)  And you discover it’s now worth paying the penalty to get into this new mortgage.
5- Everything is going great… but come payout time, your Banker contacts you… They make a last-minute plea to save your business… Somehow, they miraculously offer to match the Broker rate…
Every heard of this before?  What would you do?
Most of my clients, that go through this process, quickly discover who has their best interests at heart.  They realize it’s better to deal with ‘rate-setters’ vs ‘rate-matchers’.    But oddly enough, I have seen some clients stick with their Bank… Like other addicts, they can’t seem to explain it..   Even after going through the entire mortgage review and approval process (or what I refer to as the  Bank detox process).   When asked why they stayed, they couldn’t give any logical reason.  They just keep going back to the Bank for another fix.
10 years ago, this happened more often.  But times have changed.  Kool-aid is out.  Protein shakes and Red Bull are in.  Today’s consumer is more educated… information flows faster.  Even the Bank of Canada said “borrowers who use a mortgage broker pay less, on average, than borrowers who negotiate with lenders directly”. (February 2011 entitled ‘Competition in the Canadian Mortgage Market’’).
As always, if you have any questions or comments or are just looking for a better mortgage, please free to contact me anytime.