Recently I had a client who was renewing the mortgage on a commercial property that she owned. She accepted the bank’s terms thinking that as a long-time customer they would give her the best rate. She quickly learned that a better interest rate was available with a competing bank and the difference would save her $10,000 of interest payments over 5 years. Luckily she had not officially agreed to the initial rate and she was able to negotiate an even lower rate than the competing bank was able to offer, saving her almost $13,000 in interest payments.
The above story is not unique. Whenever you need a mortgage, shop it out! A 1/2 percentage point difference on a $300,000 mortgage means a savings of $7000 in interest payments over 5 years. Easy money in your pocket.
While reviewing your mortgage make sure to review your insurance as well. Financial institutions often offer you life, critical illness or disability insurance to cover the payments. The premium is typically higher than what you can get through an insurance broker, but there is one extra extremely important benefit of getting your own individual coverage, that of portability. If you buy the insurance that comes with your mortgage through the financial institution and you become uninsurable, it is unlikely that you will be able to renegotiate your mortgage as easily. You will have to stay with the same institution and on the same terms in order to maintain the insurance coverage. Change the institution or change the mortgage principle and the insurance coverage is void and evidence of health is required to acquire new insurance.
It is possible to get individual life, critical illness and disability coverage on your mortgage at lower rates and with the added feature of portability of coverage so that you can feel free to negotiate your rate, change your principal or change the institution that carries your mortgage without having to worry about loss of coverage. For example, Blue Cross and Humania offer a combined life and disability plan that covers the mortgage payments regardless of the institution you have your mortgage with. If you change institutions, simply let the carrier know and the payee for the benefits change automatically.
Negotiate your mortgage and cover it with individual insurance rather than insurance offered by the financial institution so that you have flexibility in changing the institution without jeopardizing coverage… Two valuable lessons that can save you thousands of dollars.