Negotiating My Mortgage – RBC vs My Credit Union

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A few months ago I began thinking about the fact that my first mortgage term was about to end and that I would soon have to sign on for a new term with someone.  Read about my adventures with comparing banks to mortgage brokers.

If you get excited at the thought of negotiating mortgage rates and debating fixed vs variable terms then you might be a redneck personal finance geek.

Related: Porting a Mortgage

My first step in beginning my negotiations was to figure out how much leverage I had with potential mortgage providers.  Because I live rurally, my mortgage isn’t very large relative to the average in Canadian urban environments, but I found out I had a good credit rating for my age (780) so I knew that I would be considered a pretty good risk.  The few dollars it cost me to get all of my credit information allowed me to play on the same level as the banks and credit unions I would be approaching to lend me money.

My Personal Situation

Just to provide a little bit of background, I first purchased my home three years ago when I moved to my rural community (see our free eBook on Buying Your First Home in Canada) I committed the PF Blogger’s sin of buying a house with less than 20% down because there was almost no rental options available in the small town I was moving to and because I was fairly certain the housing market was going to escalate quickly in the area due to recent developments in the local resource extraction industry (which it has).  Because I was very young at the time and did not have a massive down payment I was considered a high-risk client and consequently I basically accepted a higher rate from a bank that specialized in such mortgages because I had to.  This time around I’m determined to leverage my steady job, good credit score, and decent amount of home equity into the most competitive rate I can drag out of someone.

Financial Davids and Goliaths

Negotiating My Mortgage – RBC vs My Credit UnionInitially I looked up the best posted rates within Canada and contacted a few of the major players in the Canadian market.  As you might imagine, the “Big 5” were very close to each other and the Credit Unions were a shade below their offerings.  I knew that there was still substantial room for negotiation since I was offering to bring a new mortgage into their fold (lenders love to extend all sorts of perks to bring in new people since they know that very few people will ever bring their mortgage anywhere else once they start somewhere and it usually allows the lender to offer them other various financial services as well).  After an initial round of introductions I narrowed down the competition to two lenders: RBC and my Credit Union.

Related: Mortgage Brokers in Canada

The Final Showdown

It was no surprise to me that it has come down to these two because I already do business with both institutions (it doesn’t hurt that I offered to make each of them my exclusive financial services provider if they were to win my business through my mortgage).  I have had  a basic checking account with my credit union since I was 10 years old and got paid for cutting the grass there (got to love small towns), as well as a student line of credit I opened when I attended university.  They are very competitive in Manitoba and offer fantastic personal service.  I have also banked with RBC for the last few years, have a small car loan through them, use one of their credit cards, and have a business account with them that generates a decent little profit for them month after month.

Related: How Wrong We’ve Been About Mortgages

The Credit Union’s Offer

So far RBC has been a little slow in getting their semi-final offers to me.  My credit union however, recently contacted me and said they were pleased to offer me the following fixed options:

 1 year @ 2.39%
 3 years @ 2.69%
5 years @ 2.99
10 years @ 3.99%

As well as a weird variable rate of 5 years closed at Prime – 0.85% BUT their prime mortgage rate is not the same as a bank’s prime rate (it is currently at 3.35%).

Related: Variable or Fixed Mortgage?

The three year product looks most attractive to me since I will likely me moving in 3-4 years (although all of those options are available to be portable and blended if need be).  I don’t really like the variable rate idea since their “prime mortgage rate” is more of a marketing gimmick than anything.  The Credit Union also offered to cover all of the costs to transfer over the mortgage.  I personally think that RBC will have a tough time beating this offer, but a I figure I might be able to leverage the Credit Union into dropping their 3-year rate to 2.59%, what do you think?

It’s the Little Things…

Some of you out there might be wondering, “Why the heck does this guy put so much time and effort into something as mundane as a few tenths of a percent on a mortgage?”  The answer is that most people severely underestimate how much a small change in their interest rate affects the overall amount of money coming out of their pockets.  My mortgage isn’t that large and for every tenth of a percentage I can manage to shave off I will save a few hundred dollars over the course of the term (if it is for 3-5 years).  For most people with a $250,000-$400,000+ mortgage, lowering the average rate of interest paid over the life of a mortgage by a quarter of a percent or so is going to save tens of thousands of dollars.  My thoughts are that I’d rather invest a couple of hours of time on email and telephone negotiating in something that’s going to save me this much money, as opposed to doing something like clipping coupons that I don’t have much patience for.

There are several studies out there that show that mortgage customers who are willing to look at changing lenders every time their mortgage term comes due save thousands of dollars over the course of their mortgage.  Whether you actually jump to a new lender, or just use another offer to leverage yourself a better deal with your current financial institution, it’s certainly worth it to explore your options.

Next week on the personal finance geek channel we’ll take a look at the age-old question of variable vs fixed rates when applied to today’s offers.  Most of the time I’d be inclined to go variable, but as of right now I’m not so sure.

Do any of you have experience at negotiating lower mortgage interest rates?  Do you have any tips that worked for you that you liked to pass along?  What are some of the best rates that you’re being offered right now?

 

9 Comments

  1. Marguerite on July 11, 2013 at 12:38 pm

    Did you talk to a mortgage broker? They have a lot of leverage with lenders and usually can get you a pretty good rate.



  2. Kyle on July 11, 2013 at 4:07 pm

    I’ve found that most people get better results for myself not using a mortgage broker Marguerite. The overall data shows that they almost never save you more than they cost in terms of fees.



  3. Brian on July 11, 2013 at 8:55 pm

    We actually moved from a Credit Union to TD because they gave us variable rate at -.85, actually! It will be interesting to see what we can get in a couple years when it comes up for renewal.



  4. Scott Dawson on July 11, 2013 at 9:31 pm

    Good rate offers considering rates just increased a couple of weeks ago. The 5 year is just over 3% now. If you are thinking of moving in the next 3-4 years you may be better off with another lender than your Credit Union. Depending on where you plan on moving Credit Unions have a more limited lending area and will only generally near their branches. I have clients that found this out the hard way. Just something to keep in mind.



  5. Teacher Man on July 12, 2013 at 8:30 am

    Great point Scott. We’re staying within the same province so that won’t be a big deal. Thanks for the feedback.



  6. Teacher Man on July 12, 2013 at 8:31 am

    That’s a great variable rate Brian! With the Fed announcing yesterday that they won’t be tapering any time soon, it appears that mortgage rates aren’t going to rise any time soon. At this point I think I’m actually leaning towards the 5 year option!



  7. Koala on July 12, 2013 at 9:46 am

    You usually don’t pay a fee, unless you’re counting the commission they get from the lender. We used a broker, and got a rate that was bought down -0.05% from their commission.



  8. Manish on July 16, 2013 at 8:30 pm

    Hi,

    Did you talk to CIBC? I got 2.4% 3 year fixed. I am going to sign my papers on coming Friday.



  9. Teacher Man on July 16, 2013 at 10:18 pm

    2.4%?! Really eh? Well then, looks like there is some more negotiating to do!



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