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.