I have been in this industry most of my professional career and that is pushing 30 years now. When starting a relationship with a new client, the most common question I have received over the years is “Why use a Mortgage Broker Instead of A Bank?
I try never to give a direct response to this question, but instead choose to provide some insight to the industry and let the decision be made by the client.
However, it seems that the common industry responses and perception always lead to “mortgage brokers get the best rates, mortgage brokers look after your needs, mortgage brokers work for you, not the bank, etc., etc., etc.
Those, in my opinion, are not reasons to use a mortgage broker. Far from it.
Perhaps against my best interests, but I thought I would write some reasons why you should not use a mortgage broker. Don’t misunderstand, there are many good reasons for using a mortgage broker. Financing for a purchase, refinancing can be a stressful process and one shouldn’t have to worry about visiting multiple lenders, understanding different terms, rates, conditions and figuring out how and what is negotiable.
The point though, is that you should choose a service provider based on the companies and individuals strengths, abilities, professionalism, efficiency, etc.
If the mortgage broker is performing their job and fulfilling their mandate, they will find you the best mortgage specific to your situation. This would include: rate, terms, conditions, etc.
In a perfect world, that should be the case. So why are there reasons you should not use a mortgage broker?
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They present you with a “cookie cutter” 5 year fixed or 5 year variable rate.
Almost all advertisements, collateral material, etc. are geared towards specific terms. Yes, you should be looking for best value for dollar. However, you must consider all options including length of term, amortization period, terms, conditions, etc. I often see a client locked into to a higher interest rate for a long period of time because they had some minor credit issues, or income issues at inception. Although there is no crystal ball, often these situations are short term and can be cured in a year or so. Locking into a long-term situation eliminates potential for interest rate savings long-term.
Most times, clients will sign for a “common” amortization period. Say, 25 or 30 years. Checking their affordability will often result in being able to easily accommodate a shorter amortization. How does 24 years sound instead of 25? Not much? The interest savings available just by reducing the amortization period by even one year is more than you think.
You must make sure you go over your needs, budget, requirements with your financial representative, be it a mortgage broker or a financial institution. Help them to help you.
You must ensure that you will be better off financially at the end of your term. The process should not be about the lender and the broker making money. It should be how things look for you now and in the future.
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Mortgage Broker States They Can Offer You The Best Rates
True in theory. Let’s separate myth from reality. Outside of some rate specials and cuts by various lenders, the mortgage market is very competitive. Walking into your financial institution to secure a mortgage is not the end of the world, far from it.
That is not the issue. The issue is figuring out what you want, what you need and what to expect. Not knowing is the worst. Most will go to their financial institution, apply for a mortgage, get approved and feel like they have won the lottery. Most will go, sign and receive their mortgage with total disregard to what they really wanted, needed and should have expected.
Being put in a position of feeling you are privileged to obtain a mortgage approval and accepting the offer as it is presented is just not a nice place to be. You must explore all options and make certain the offering meets your requirements.
You don’t go to your mortgage broker for the best rates. It should be a given that they will endeavor to provide you with the best rate for the circumstance. The mortgage broker is supposed to be your advisor, your guide and your “quarterback” to walk you through all aspects of the transaction. Stop making rate your only focus of attention. It is simply a wrong approach. It is one of the important factors. Most forget the others.
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Advertising
Most brokers will say they offer the best rates, they work for you, not the bank, they send out emails or flyer’s advising you to refinance so you can take a vacation, buy a new car, or and consolidate debt. They post rates and compare against the big 5 bank rates, to show your savings, most times displaying the banks’ posted rates and not the best available rates.
In the end, these are all emotional triggers. Although enticing, not the reason to use a mortgage broker. I can list many good reasons to use a mortgage broker. You as the consumer must know and understand that it is not just about “getting the deal”. It’s not about the lowest rate or any of the other nonsense. Last time I checked, there wasn’t an award for “getting the lowest rate ever” on a mortgage.
Analyze your current position. Ensure this transaction solved your current needs, problem, whatever. How will things look a year from now, 5 years from now? Why do you want to own this home, or refinance. What does the math look like? Are you really saving money or just moving things around for the sake of closing a transaction. There are many variables, many questions and many ingredients that go into the decision making process. A mortgage broker should be able to help you through this. But you must be prepared in advance.
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You Can Do It Yourself
Mortgage brokers promote the fact that they are a one-stop shop and work with hundreds of lenders to save you time and money. But mortgage rates are accessible by anyone online, and you can easily compare mortgage rates in your area with just a few clicks.
However, you must understand, the “rate shops and sites” are “NOT” true consumer sites in most if not all instances. They are merely lead generating sites for the multiple brokers and/or lender that choose to advertise on these sites. Your inquiry costs them money. Period. Therefore, the rates you are seeing are not the best in the industry. They are for the most part paid advertising to get your lead.
Your inquiry, application and approval process will then go through a “funnel”. If you are one of the few that ultimately filter through that funnel to capture that low amazing rate, you have a deal. Otherwise, you will be offered the closest reasonable facsimile and hence the term “lost leader”.
Just like you can build your own fence, renovate your own home, repair your own vehicle, you can also arrange your own mortgage. Just ask yourself what the end result will look like if you do it yourself or have a professional guide you along the way.
Summary
There’s nothing wrong with using going directly to your bank or trying to arrange a mortgage on your own. Just remember that not everyone is looking out for your best interests, especially when there are incentives in place for the lender to gain your business. Do your own research and understand all of the fees, terms and conditions that involved in your transaction.
We are not in business all of these years by accident. Mortgages are as easily available as buying milk at the corner store. So, we must be different! That means undivided attention and focus in taking care of our clients and doing everything possible to meet and exceed expectations and to make all decisions based on the premise that we are doing the right thing on behalf for our clients. This philosophy is engrained in our corporate culture and deal placement is always predicated on “doing the right thing”. We are a mortgage brokerage firm with a focus on empowering our team to do everything they can to take care of our clients. This is the core of our success and why we reach our goals primarily through client referrals.
Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (905) 265-0246.
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