The saga of renewing our mortgage is over. Thank goodness. This is one of the less fun parts of farm ownership.
But, it’s important.
It’s because of careful financial planning that Matt and I were able to buy the farm in the first place. We stay on top of our finances and prioritize our mortgage to ensure we’re able to maintain the lifestyle that’s so important to us.
Today I wanted to share a bit of our experience renewing our mortgage. Hopefully, there are a few lessons in here that might help others as well.
We were eligible to renew as of six months before the end of our mortgage term. It’s important to take advantage of this long lead time and not wait until the last minute.
Matt was watching the interest rate forecasts and suspected that the rates were going to go up, so he wanted to lock in as soon as possible. We also knew we would likely need time to negotiate the best deal.
Give yourself as much time as you can so that you’re not scrambling–and potentially paying more than you need to–at the end. I’ve also learned that rates are often lowest in the summer, so if you can work that into your timing you could have an advantage.
Organize your records
To renew, our lender needed up-to-date paperwork for our property taxes and insurance.
The credit union that holds our mortgage had gone through a merger in the last five years and changed its name as a result. We had to update our insurance to reflect their new name, which took time (much more time than it should have, but that’s just the one of the joys of home ownership).
Most cities will issue a tax certificate which shows the status of your property tax payments. Our city does this for a fee of about $60. For our credit union, our most recent tax bill showing it had been paid was sufficient.
If you’re going to transfer your mortgage to a different lender, you’ll likely need additional paperwork regarding your house, employment and income tax.
Negotiate for yourself
At our first renewal meeting at the credit union, they had little cards all around the office promoting a 2.69% interest rate. And then sitting in the meeting they offered us 2.99%. Ummm… what?
Even Baxter agreed that didn’t sound right.
It turned out that the 2.69% was for new customers only. Matt, who knew I was about to lose my mind, was very careful not to look at me. Why do you not reward loyal, reliable customers?
After a conversation, our agent offered to put in a request to “head office” for 2.79%. I still wasn’t happy, but it was better than nothing.
Guess what rate was approved. 2.89%.
Matt’s reaction was, “Well, it’s better than what we’re paying now. And what if rates go up?”
I said, “Give me a week.”
I booked appointments at two other banks, gathered all of our paperwork (including extra paperwork about our personal financial situation) and went to work. In the end, I managed to secure two offers at 2.64%.
Because these companies weren’t familiar with the farm, we would have to go through an appraisal again. But both banks waived the fee.
Matt shared the emails with the new offers with the credit union—the written evidence was important. And… they matched the rate. Thank goodness.
Biggest lesson from this renewal process. Do not accept the first offer you receive. Work with your current lender. Engage a mortgage broker. Shop around to other lenders. Do everything you can to get the best deal for yourself.
While a quarter of a percent may not seem like a huge decrease, on hundreds of thousands of dollars over five years (or longer) every percent makes a difference.
Read your mortgage policy
Before you sign anything, read the paperwork—even the dense, legalese, policy parts. Understand what is expected of you and what flexibility exists for payments.
For Matt and me, being able to adjust our payments if needed and being able to make lump sum payments against the principle are important.
There have been some changes to our credit union’s policies, so it was important to understand how that would impact how we usually manage our mortgage.
Pay attention to your payments
Thanks to our lower interest rate, our new payments are much lower than they were before–or they could be. Matt and I have chosen to keep our payments at the same level, which means we’re putting more towards the principle than before–$63.80 every single week. That’s more than $3,300 extra that we’re taking off the principle every year, which means the farm will be completely ours that much sooner.
Consider your situation
Five years is a long time. Things may have changed since you first signed your mortgage. When renewing your mortgage think about where you’re at now in your life as well as what’s ahead and what you need.
Maybe interest rate isn’t most important to you. Maybe you want to change your payment amounts or timing. Maybe you’re ready to renovate and want to set aside money for that. Over the last five years, Matt and I have changed jobs, renovated, bought a new car. And who knows what’s ahead.
We’re confident that we’ve done our best to set up the new mortgage in the way that works the best for us and that we have the flexibility to adjust if we need to.
Anyone else have a mortgage story to share? What are your tips for negotiating with a financial institution? How do you balance lifestyle and finances?