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Negotiating Rates in Good Faith

While surfing the blogosphere I came across this post over at “Thicken My Wallet.”  Here’s a quote:

We went to our banker and he gave us the standard rate that his bank offered. It was 6.60% for a five year fixed term. We shopped around and found a better deal at 5.48%. I have an investment account, two bank accounts, two business accounts, a VISA account, and a line of credit with my bank and why they don’t automatically give me the best rate is a topic for another day. We wanted to keep the mortgage with our bank and our banker agreed to match the 5.48%.

This post raises a couple of interesting issues.

First, it beautifully illustrates the difference between banks and mortgage planners. Banks are pure profit machines.  Relationships come second.  If it were the other way around, a banker would never “reward” a good customer by trying to stick him with a artificially high interest rate.

With mortgage planners it’s a different world.  We rely on relationships to put food on the table.  Unless our clients trust us, and know we’re focused on their best interests, we’re dead.  Period. 

The number one tool professional mortgage planners use to build relationships is old fashioned, but it works: Honesty. One way we (personally) practice what we preach is by providing our best quoted rate upfront.  I won’t speak for the industry, but in my case, generally the only way I can go any lower is if I take the difference out of my own pocket.  Clients usually don’t ask me to do this because they respect that I have a family and need to earn a living too.  Moreover, residential client’s don’t pay a cent of my compensation regardless.

Forest-Gump In the banks’ case, it’s like a box of chocolates.  Like Forest says, “You never know what you’re gonna get.”  You can bet on one thing for darn sure, however.  You will almost never get the bank’s lowest rate up front.

For us, this point was recently driven home when a new client came to us for a $2 million mortgage.  Before contacting us he went to his bank–where he had been a customer for many years, with very large assets. 

What did the bank do to reward his valuable business?  They offered him an above market interest rate of 6.05% and  meager 10% pre-payment privileges. 

Nonetheless, believe it or not, the client was happy.  The bank’s offer was better than he thought he’d get. 

We then countered with a product that was perfectly suited to his goals.  We built a trusting relationship, explained all of his many options, created custom spreadsheets showing the math behind each option, offered much better mortgage features, secured him 25% pre-payment privileges (2.5 times more than the bank had offered), and offered our very best rate at the time, 5.69%.  That was pretty much the lowest rate you could get for the product he wanted.

Our lower rate and pre-payment flexibility meant that he could save almost $100,000 in interest over five years.

Only after we did all this did his bank decide to sharpen their pencil.  The bank proceeded to call the client repeatedly with new offers to get his business.  The bank ended up closing their rate gap–the day before he planned to sign the mortgage commitment we secured for him!

Why did the bank lower their rate in the end?  They didn’t do it because they respected and cared about the client.  They did it because we, the mortgage planner, forced their hand by working hard for the client’s business from start to finish.

Due to our efforts–and not because the client had been a large and loyal customer for years–the bank decided to give in and offer him a better rate.

That, my friends, is how many big banks do business.

In my example above, the client chose to do business with us, despite the fact that his bank eventually offered him a very competitive rate.  As he put it, “I never would have got that rate without you.”  He thought of staying with his bank for convenience, but then told us simply: “I have decided to go with you, out of principal…Thanks again for all of your hard work!”

– Melanie McLister, Editor & Mortgage Planner