Comparison Shop for Your Mortgage Too

By Kerri-Lynn McAllister

We live in an age where comparison shopping is the norm and not the exception. Why would you pay $250 for those Acne jeans at one of Canada's cartel luxury department stores when you just saw them on the Outnet.comfor $100? You wouldn't.

The same applies to everyday items – this week, you bought milk at Shoppers Drug Mart because it was on sale. [Never mind that this is a common ploy to get you into the store to buy discretionary items]. And maybe you bought your produce at No Frills, since you know it's the stuff left over from Loblaws.

So, why don't more people comparison shop for financial products?The obvious answer is that financial products are complex, and I suppose this translates into a predisposition to go with your longstanding bank or a personal referral. Plus, there is an inclination to get the information in-person, when, in fact, there are a number of great resources online that allow you to research and compare options.

Why would you look at jeans online and not mortgage rates, for example? I can't imagine anything requiring more of a personal fit than jeans. Moreover, if we get into price comparisons and savings, you may save $150 with your jeans, but you can save thousands with the right mortgage rate.

Shop online for these financial products

There are a number of financial products that can easily be compared online to find the best deal. One such product area is insurance. InsuranceHotline.com, for instance, is a search engine to find the best insurance ratesfor all your needs, from home and life insurance to car insurance.

Credit cards are another area you should look into for added savings and rewards. In addition to interest rate savings, there are a number of cash back incentives and rewards up for grabs. NerdWallet.comdoes a great comparison of Canadian credit cards, and BankNerd.caalso has a comprehensive guideline on choosing the right card.
Other financial products you may want to compare are savings and GIC (or Guaranteed Certified Investments) accounts.

These online tools are free, user-friendly and, best of all, you can access them at anytime from anywhere.

Why should you "shop" around for mortgage rates?

A mortgage, more so than with any other financial product, presents the opportunity to save a hefty sum through comparison shopping.

Not too long ago, it was common for homeowners to simply sign the dotted line on a mortgage renewal letter without so much as checking the rate on offer. Now, however, more people are doing some basic research into the best Canadian mortgage rates available on the market. Banks are increasingly aware of this fact and are now sending out "special offer" renewal rates (discounted from the inflated 'posted rates' advertised).

A posted rate on a 5-year fixed mortgage can be as high as 5.40% right now, but renewal rates in the mail may come in at 4.04%. Still, you can do even better than that. A mortgage broker could likely get you a rate as low as 3.50 % today.
If you just signed that renewal form, you threw away a significant lump of money in interest costs.

A quick comparison

Let's say you purchase a property with a mortgage value of $300,000 which is amortized over the standard 25 years.

At a rate of 4.04%, your monthly payments would amount to $1,584.57. The interest cost over a 5-year term would add up to $56,417.76. Comparatively, at a rate of 3.50%, your monthly payments would amount to $1,497.81 and the interest paid over the 5 years would drop to $48,708.61. You just saved $7,709.15 in interest costs! This demonstrates the considerable impact a mortgage rate can make on your financial situation, monthly budget and level of discretionary spending.

With the potential for savings so great, why not spend a little extra time looking for the best mortgage rate possible?

Cost vs. Benefit

Many borrowers are hesitant to switch banks due to longstanding relationships and the belief that it is difficult and expensive. Yes, it may cost you a little money and time, but considering the savings potential, it is often worth it. In addition, the bank you want to switch over to may cover your legal costs. If not, and there's a fee (typically in the $500 range), that's a small price to pay upfront for long-term savings.

Statistics show that only 22% of people look exclusively online for mortgage information.[1] And according to the Canada Mortgage and Housing Corporation (CMHC) 2010 Consumer Survey, mortgage holders reported that, on average, they got 1.96 quotes when they acquired their current mortgages. These figures are low considering the savings possibilities and presence of online platforms that easily compare rates on financial products.

You can continue to buy discounted milk at Shoppers Drug Mart, but if you want to save thousands of dollars every year without changing any of your spending habits, comparison shop for financial products too. It's that simple.