Does an Existing Relationship with a Bank Get You a Better Mortgage Rate?
“Guess why you got this special mortgage rate?”
The bank manager peers across the desk, strewn in paperwork. My husband and I recently purchased our first home, and we’ve come here to discuss our mortgage application. As it turns out, we not only qualify for one, but to our surprise and delight, we are offered a special low interest rate.
“It’s because of your prior relationship with our bank.”
At first, I’m puzzled. As a self-employed writer with a modest income, I wouldn’t expect to be treated like an “A-lister” by a financial institution. But even though I’m not rolling in dough, the fact that I’ve been a steady, long-term customer of my bank ended up getting me a better deal.
“Your ‘character’ is one of the five ‘Cs’ of credit worthiness,” says Robb Engen, a fee-only financial advisor and co-founder of the personal finance blog Boomer & Echo. “Just think: would you be more inclined to lend money to a complete stranger or to someone you already know and trust?”
It’s a logical point. So if you’re putting in a mortgage application, here are a few ways you can improve your relationship with the bank, thereby boosting your chances of getting the lowest interest rate possible.
Flash Your Credit Card
“Another reason you’re getting a better interest rate?” my bank manager continues. “You have a credit card with us.”
For me, this is another surprise. I’ve been a Scotiabank Gold American Express cardholder for eons, but I had the false assumption that a credit card might actually be a deterrent to my mortgage application. Wrong! As I learned, banks profit from each credit card transaction (stores and vendors pay for every swipe), so it can be viewed as an asset to carry a card with them.
When you go for a mortgage approval, make it known to the bank that you already have a credit card that they issue. If you plan to apply for a mortgage in the distant future and your current credit card is not tied to a banking institution, consider opening an additional credit card now that is issued by a bank. By the time you want to become a homeowner you’ll already have a solid reputation with a bank and will be in a better position to get a low mortgage rate.
Put Multiple Products Under the Same Roof
In addition to credit cards, having multiple products at one bank is a key factor in building a positive, long-term relationship, according to Engen. The more savings accounts, RESPs, investments, and so forth, the more generous the bank will likely be with lowering their mortgage rates.
“The [approach] that I personally favour is to have all of my banking in one place,” says Engen. “So for me, I have my chequing and savings accounts, investments, mortgage, and line of credit all at the same bank. I’ve used that leverage to get a better interest rate on my mortgage renewal, and rather than threatening to leave, I simply do my homework, shop around for the best rates, and then ask my lender to match or beat that rate in order to keep my business.”
The bottom line? Sometimes putting all your eggs into one banking basket pays off in the long run. Had I known this beforehand, I might have opened an investment account through my home branch instead of using an independent financial advisor.
“Friend” the Bank, the Old School Way
In the digital age, we’re increasingly banking online and through our mobile devices. But Engen says face-to-face interaction with bank employees can keep you connected and yield invaluable VIP perks.
“It doesn’t hurt to stop by a branch once in a while when it comes time to make a key decision, such as a mortgage renewal,” says Engen. “Use that relationship to your advantage. For example, I always grab a business card so I have direct phone and email contact with a bank employee. Then, if something happens, like the time my account went into overdraft, I simply sent an email explaining what happened and the employee reversed the overdraft fees.”
Once you’ve “friended” the bank, you’ll have a much stronger mortgage application and increase your value as a customer, making it easier to refuse the so-called “published” rate that your bank might first offer. It definitely made the difference for my application. After getting to know the bank manager, I asked if he could match their competitor’s lower interest rates. Sure enough, he submitted our application to their “Exceptions Department” and got us approved for a lower mortgage interest rate.