17 August 2011

Of course, banks are doing a lot to keep customers, but when you decide to renew automatically, you’re risking not to get the best deal you deserve. In most cases people don’t bother making proper researches before signing the bank’s offer. Often they just read the renewal letter, sign it and send it back. And that is one of the biggest mistakes a borrower can ever make, because banks tend to offer their posted rates in the standard renewal letters.
Today the posted rate on a five-year fixed closed mortgage is 5.39%. Sometimes banks may offer 4.00% in a renewal letter. But the deal is that a broker can get you 3.39%, so you have a chance to save a lot.
If you have a $300,000 mortgage at 4.00% with more than 35 years of amortization, the monthly payment would be $1,322.40. The total interest cost during a five-year term would be 57,441.68. In case of a 3.39% rate your monthly payment falls to $1,216.75, with the interest over the five years cut to $48,526.55.
And if you decide to take the posted rate, you would pay $1,577.87 each month, so in the end your interest cost would rise to $77,851.84.
It’s obvious that being lazy will cost you a great deal, so why do people still prefer to stay with their lenders? Some people think switching to another financial institution is quite difficult and expensive. Yes, you will have to make some arrangements, but a $9,000 of «discount» is a good compensation for it. In addition to it, your switching costs can be covered by the bank you are switching in to. And even if it’s not the case or you have to pay a discharge fee of $200-$300, it’s still not so much.

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