As a former mortgage representative, having completed hundreds of refinance deals for a multi-billion dollar financial institution, I have seen many opportunities to have fees waived and interest rates cut, when a customer decided to refinance with our company for a new mortgage, or in some cases, threaten to transfer out to a competing institution that seemed ever so keen on paying the discharge fee for the transfer. My branch would send out renewal letters for a signature from our client’s, whose mortgages were coming up for renewal, and what I noticed shocked me. I was able to determine, that just over 50% of the letters sent out would be returned to us with a signature, accepting the posted rate! The remainder would either come in to the branch and ask for a better rate than posted, and the remaining percentage would either payoff a balance owed or transfer out to another financial institution.

When speaking to clients, who came into the branch in attempt to negotiate a lower rate, I would generally allow them to present what they thought was a reasonable rate, before I would offer them the mortgage refinance option that my company wished to promote during that time period. In the event the customer was not happy, or wanted other options than those presented, a manager would be consulted with, who would normally come in and make an exception by providing a 10-15 basis point (0.10% – 0.15%) reduction to the posted rate in question, after much hand wringing and deep sighing. I found most clients would jump on this deal without further negotiating, as they believed this was the best they could do, given, their seemingly inconvenient request.

Finance Institutions in North America, that are in the lending game, have significant resources when it comes to negotiating, and understand the process all too well when it comes to mortgage rate discussions. These institutions have created a bureaucracy that forces you to jump through hoops, in order to get things done on your behalf, such as making an exception for a better mortgage rate or waiver of fees. Hence, it always makes sense to negotiate your rate with your financial institution or have a mortgage agent work for you in this regard. It is also important to consider and know what the interest rate on a second mortgage loan is in Ontario, when looking at your overall circumstance.

I have seen numerous clients leap at the first offer, or press on for a better deal in limited cases, only to be rebuffed, as their request is processed with a indefinite timeline. I have observed most clients give up, as no one can wait for a response to a second request for a discount on the mortgage rate that does not seem forthcoming. It is then, in one’s best “interest”, to polish up on any negotiating skills via a few simple steps we will cover in the subsequent pages of this website, to make sure one can get a better rate than posted.

In a refinance, I would do my homework prior to my application

It is a competitive market out there, regardless of how big any one mortgage lender may be, each corporation, in my opinion, will do its best to maximize profit for its shareholders. When negotiating a refinance rate, it is important to understand that there is a process in place, that requires effort on my end. The following are items I would get in place, prior to approaching the mortgage lender:

First, I will get a copy of my credit report: I would initiate this step at my earliest opportunity to make sure there are no errors on my report. In some cases, one may find some information that may be inaccurate on their credit report, which can then detrimentally affect one’s credit score. When I ordered my report recently, I noticed multiple errors on my credit report that resulted in a lowering of my credit score. By reviewing my credit report to ensure its accuracy, before applying for a mortgage refinance, I will have done the leg work to make sure I am not subjected to any negative terms and conditions of a negative credit score. A bad credit report can result in the lender charging a higher interest rate, requiring a co-signer, a higher down payment or in many cases a outright rejection of my mortgage application. A good credit score does give me some leverage when negotiating for a new mortgage and the opportunity to secure a competitive interest rate.

I will ask the following questions about my refinance options: As demonstrated and discussed in the previous page, just a difference of a fraction in the interest rate can translate into thousands of dollars in savings over the life of a mortgage. Hence, it is important to be aware of the features of the product I select, once I have decided to refinance my mortgage. In particular, I will ask the following:

Does this product allow for additional payments to be made or is there a penalty associated, such as a prepayment penalty?

Is this a fixed product that ensures the rate does not fluctuate or is this a variable rate product where the rate adjusts in relation with the prime lending rate?

If I wish to refinance again in the event of a rate drop, are there any penalties for doing so with this product?

If I were to buy another home, could I transfer this product to the new residence (i.e. is this a portable product)?

In many cases, mortgage lenders will allow for an early renewal or refinance of a mortgage, with typical timelines being between 90- 120 days prior to the maturity date of the original mortgage. This is an excellent time to shop other mortgage lenders and leverage the best rate and product to suit my individual needs.

Once I receive an approval on my application, I will ask for the mortgage representative to provide me with a written copy on company letterhead of this approval, which, I will then take to any competing lending institution, to leverage my bargaining power. One commonality I have come to recognize in the lending industry, is that most big lending institutions have very similar underwriting guidelines, that determine if you qualify for a mortgage, and the amount you could carry based on your financial situation. I believe, there is very little value in applying for a brand new mortgage refinance application at multiple competitors, unless one of them can provide you with the best rate on the market and match any competitor’s rate you may find.

The reason I am hesitant to apply for a new full blown application at each new lender, is due to the fact that it apparently reflects negatively upon my credit score, as it is viewed as “credit seeking” behavior, and will ultimately lower my credit score. Instead, I show the competitor what I have in hand, a confirmation of an approval from the original lender, and ask for the best rate available, something that would entice me to transfer my business to their lending institution. Once I receive that commitment from a terms and conditions standpoint, inclusive of a competitive rate that is satisfactory to my refinance requirements, I would then proceed with a new full application with this competing lender.

If you require assistance from a mortgage broker to address these discussions, contact a mortgage agent such as myself, and we can work together to obtain the best mortgage rate for your particular circumstance.

In the next installment, l will share my process, of navigating these waters of mortgage rate negotiating, and how I would go about getting the best refinance mortgage rate for my home.

Victor Kaushal.
victor@bestrefinance.ca
416-895-6074