Loyalty of no use while renewing mortgage

A study undertaken by the Bank of Canada discovered that when it comes to renewing mortgage, usually best deals are not given to devoted bank customers. On the contrary, it is availed by first-time buyers and those switching banks.

In fact, every individual likes to think that loyalty would be rewarded. Many expect a better price, some discounts or even superior customer support. But your loyalty may or may not be rewarded.

In order to find what is what, you need to have more information regarding your options. You need to evaluate prices, read the details in a contract and keep a tab on the happenings - the Internet is the best medium, as all products are displayed online here. It enables you to explore options, make queries, and also bargain for what you want to buy.

Buying a home is one of the major investments we make in our life and, hence, when we save even a small amount on mortgage, we are able to put aside several thousand in interests.

In this case you expected loyalty to your bank to pay dividends, but this is not the case always, says the paper released by Bank of Canada in 2011 and titled 'Discounting in Mortgage Markets' - an evaluation of studies on issued mortgages undertaken during 1999 and 2004 by three economists to determine who avails the most favorable rates.

These economists discovered that compared to existing customers, people changing banks receive superior deals, as the new clients provide banks with the prospect of selling additional products. While the customers do not shop around believing that they would automatically be offered most favorable mortgage rates, actually this never happens and they get insignificant discounts. The affluent are most unlikely to look for a new bank, as they receive full service from their existing bank and are even content to accept elevated mortgage rates.

In addition, the economists discovered that the best rates are availed by mortgage brokers, who usually sell products of several lenders. As their business is cutthroat, there is extreme pressure to find the most favorable rates.

Those buying a home for the first time also do well, as they look at various choices, have a fixed budget and stand up for each basis point. Although they are more of a risk to the bank owing to their huge debts, eventually the bank is able to sell more services to this group and, hence, they get better deals. In addition, lenders are eager to give discounts to young borrowers, as they expect huge profits from this group later.

These findings did not come as a surprise to the Canadian Association of Accredited Mortgage Professionals president Jim Murphy, because about 25% mortgages in Canada are finalized through brokers and as high as 40% new buyers employ brokers for the purpose. This group comprises younger people who shop a lot, do plenty of research, not very loyal and prefer doing new things. They prefer brokers provided the latter are able to get them all that they desire.

Murphy suggests mortgage seekers to shop around more and do a lot of homework before committing themselves.

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