When your mortgage is approaching the end of its term, your lender will give you what I like to call the “laziness test”. Basically, they send you a renewal offer that promises a hassle-free renewal if you sign the letter and mail it back to them.
The catch is that the offered interest rate is often at a bank’s posted rate, which is about 2% higher than current competitive rates. The bank is just hoping that you’ll be lazy and not notice.
It ends up being a very profitable tactic because amazingly, approximately 1/3rd of renewers actually take the initial offer! We as consumers have taught the banks that once we have an established relationship we develop a blind faith and will no longer shop around. Since it is well understood that the more products a consumer has with a bank the less likely they are to investigate alternatives, we shouldn’t be surprised that approaches like the “laziness test” have been developed.
The best thing to do when you get a renewal offer is to call me, or any other independent mortgage broker.
One of two things will happen: either we will help you secure a much lower rate at a different lender or, when your current lender realizes that it actually has to compete to keep your business it will finally offer you the competitive rate you and I know should have been given to you in the first place.
In either scenario, you’ll be glad you spoke with an independent expert and, more importantly, you’ll pass your lender’s laziness test with flying colours.