Friday, May 2, 2008

Mortgage Strategy

Yesterday I asked why anyone would get a mortgage with one of Canada’s big 5 banks considering that their advertised interest rates are much higher than other alternatives such as ING Direct and PC Financial. I got some useful responses from readers.

Like most things in life, the price of a mortgage is negotiable. The big banks do give mortgages at rates much lower than their advertised rates, but you have to negotiate to get these low rates. Using the ideas from the reader responses, here is one possible strategy for getting a good interest rate on your mortgage:

1. Go to a financial institution that offers low advertised interest rates and negotiate a mortgage rate. Choose an institution that you would be willing to actually use for your mortgage; you may end up coming back if you can’t get a better deal anywhere else.

2. Armed with a firm offer of a low rate, go to your preferred big bank and try to negotiate a better deal. But, be willing to walk away if you don’t get what you want.

3. If you get confused, walk away temporarily. Banks don’t produce billion-dollar profits by training their people to negotiate poorly. Bank employees have techniques for dealing with people trying to use the strategy I’m describing here. It’s important to expect to have something thrown at you that confuses you.

4. Be prepared for the most effective negotiating strategy of all: likability. We tend to compromise with people we like. There is too much money at stake with your mortgage to let rapport with the bank employee affect the outcome. Stay focused.

Some additional thoughts from Preet who writes the Where Does All My Money Go blog are to exploit bank quotas by negotiating at the end of the month or at the end of October, which is the end of the fiscal year for the big banks.

Mortgages are a major cost for most people and it is worth spending some time to keep costs down. I’m interested in hearing about any other strategies or experiences that might help people get better deals on their mortgages.

4 comments:

  1. This is more of a rant than a strategy but...

    I had my mortgage at TD - when it came due last year I told them to give me their best rate. I also told them I would be shopping around including mortgage brokers so they should have known I would get a pretty good rate. As it turns out I got .3% less from a mortgage broker and went with them. Later at the bank, the guy told me they could have matched if I would have let them and I told him that I did give them the opportunity to give me a good rate and they didn't come close.

    In my opinion you have to be able to walk and you should! The idea of going back to (and rewarding) the institution that won't give you the "good" rate until you spend several hours hunting down a better offer that they can match just makes my blood boil! Going back to the big bank just reinforces their bad behaviour.

    thanks for listening...

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  2. Four Pillars:

    Now who's ranting :-)

    My "strategy" may not seem like much to someone who is good at handling money and negotiating, but few people are good negotiators. Even just the basic steps I suggest would be a big improvement for many people.

    I agree that you should walk away if you are not offered a better deal than you can get elsewhere. But, you should be happy to reward a bank if they offer you the best deal you can get.

    There is too much money at stake to let the outcome be affected by whether you like or dislike the bank or whether you like or dislike the bank's salesperson.

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  3. Thanks for the link MJ! Have a good weekend.

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  4. FP,

    I had a similar experience with BMO. Considering the cash-cow that a mortgage is for these banks, I'm surprised how poorly I get treated.

    Then I went to ING, and had a frustrating experience when my mortgage was complete (getting the right paperwork, etc.) I know I'm no longer a customer, but there's no better way to ensure I don't get my next mortgage with you if you treat me like crap during my final dealings with you!

    (rant off)

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