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Are the Banks your friend?

February 25, 2013

When one considers that a mortgage averages $301,000, installment loans average $22,849, for auto loans it is $19,228 and credit cards are $3,573 on average, it is easy to see where people are paying the bulk of interest.

Many people think that the bank is their friend. They get their mortgage, their auto loan and their other consumer debt at that bank. And because they consider the bank to be their friend, they never do any shopping before they sign on the dotted line.

They do not realize that even though they have given the bank all of their business for 10 or 15 years, they are not getting as good a rate as a newcomer to the bank who has done their research before they made an appointment. Becoming complacent can be an expensive state of mind when incurring a large debt.

As an example, if you are borrowing $300,000 to buy a house, in a 5 year term at 5.24% you will pay $73,675 in interest. If you get a better rate of 4.2% %, you will pay $58,709 in interest and if you can get the interest rate as low as 3.2% you will pay $44,444 in interest for the same 5 year period. I used an online Canadian mortgage calculator for both the rates and the amortization schedule.

So you can see that if you shop for rates on a $300,000 mortgage, you can save up to $29,231 in 5 years doing nothing but a little homework. The banks will not tell you this. The banks profit depends on uneducated customers.

What a bank does is kind of average the rates they charge customers. A bank will give a new customer a very good rate to get the business especially if that customer has educated him or herself. Whereas an established client who assumes they are getting the best rate will pay a higher percentile for their loans.

We are not powerless. The banks are in the business of lending money and if we shop around and let our current lender know that we are shopping, we can negotiate better rates. As in all business , the informed negotiator will get the better deal.

If it is anywhere near the end of your term do some checking online. Your favorite person at the bank will not necessarily give you the best rates unless you share blood ties or wedding vows. You must do your homework.
There are other terms that can be negotiated to reduce the amount you will pay the bank that will be discussed in later posts. If you want to see if we can help you at FEAT send me an email or call me at 250.878.7306.

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