It is mortgage renewal time in my house.
I am one of those debt-loving people who believe I can do more with my money by carrying a big debt at 3%, than by paying off my house and using up all that cheap capital - but that financial idea is a story for another column.
So, even though my mortgage comes due in October, I decided to lock in a rate four months earlier at a different institution at 2.79% for five years fixed. I was thrilled to have another five years of cheap money.
Even though I had already locked in elsewhere, I was interested in what my current mortgage lender would provide. I waited and I waited. Just four weeks before it was due for renewal they sent me a mortgage renewal notice. They could have sent it to me two or three months before my mortgage came due, but they may prefer to leave consumers less time to shop around and more inclined to just renew.
Here is where it gets interesting. "Please indicate which option you are accepting by signing your initials in the appropriate area indicated and return your signed agreement," the letter stated.
I could just initial the five year fixed rate - for the princely rate of 4.79%.
Further on in the letter under a section called "Get the best rate," it offered to extend to you our special interest rate hold guarantee provided if I signed by my renewal date. But all this says is that if the rate went down between now and about three weeks from now, I would get the lower rate.
This is a full 2% higher than what I am actually going to get somewhere else.
If I had a $500,000 mortgage, this would cost me $47,600 more over five years by "just signing here" vs. going to a mortgage broker three months in advance.
Just to be sure that I wasn't missing something I called to make sure that I had the correct instructions and rate on my renewal. An interesting thing happened when I called. In about 30 seconds they said "I can actually get you a rate of 2.99% for five years." I asked why my rate was 4.79%, and they said that this is the standard rate, but I can get this better special rate.
Doing the math, that phone call, using the same $500,000 example, would have saved me $42,800 over five years. That was a pretty valuable phone call. I asked the kind sir on the phone how often people just sign the renewal form, and he said "quite a few."
If a bank gets 5,000 people in the same $500,000 example to sign the renewal, that adds $ 42.8 million in profit to their bottom line each year.
Please do not automatically sign the friendly mortgage renewal form.
At a minimum call to negotiate or call a mortgage broker to get the best deal for you. If you feel some sort of loyalty to your current mortgage provider, then be sure to see someone in person and ask for the very best rate that they give their very best customer. Your future net worth will be glad that you did.
Ted Rechtshaffen is president and wealth advisor at TriDelta Financial, a boutique wealth management firm focusing on investment counselling and estate planning.