The Mortgage Bazaar

mortgage-bargaining Banks invite haggling by “only revealing the lowest mortgage rate they will give you when you absolutely force them to by coming up with a better competing rate from across the street.”

That’s according to Manulife Financial Advisor, Greg MacPherson.  MacPherson’s point equates getting a mortgage at the bank with buying a car or bargaining at a garage sale.

But why should it be like this?  What do you say?

Should fiduciaries put their best foot forward from the outset?  What if your financial advisor marked up his management fee, only to lower it after you revealed a competitors offer?  What would that say about this advisor’s integrity, concern for your time, or belief in the value of his/her services?

Look at the rates on these pages:

“Special” or not, if you’re well qualified, these are not the best rates you can get at these banks.

So why the games?  Cmon. Let’s see the real rates on “special offers” pages.

The same goes for brokers.  If you’re a broker quoting a 4.09% 5-year fixed, and then lowering it to 3.89% when a competitor outguns you, that’s kind of sad.  If your service and advice are truly valuable, you don’t need to play that game.

  1. I have to agree, it seems banks(as well as a few brokers)have increasingly been using these tactics. Yes it is a competitive market out there, but the client should always be offered the best rate, regardless of your competition. It saddens me to see banks taking this type of reactive approach, instead of being upfront with their rates from the beginning.
    DaveG

  2. This comes from Manulife?? Haha.
    What about the $14/MONTH charged for Manulife ONE???? Home Equity plans via nearly every other FI are free! FREEEEE!
    Not everyone is rate sensitive. People will pay for relationship, service, conveinance, advice. Long term bank clients get much more attention than people that switch their mortgage every five-years. They get assigned to more senior people with more experience. A good advisor with a long-term relationship with a client can save them TONS of money over the long-term.
    When was the last time a mortgage broker advised a client to setup a TFSA or encourage someone to consider RESP’s for their kids. When was the last time a mortgage broker offered unlimited free banking since they have their mortgage, visa, and investments with one institution (yes, it can be done…think blue).
    Be careful just looking for the lowest rate and also dig deep into the small details to uncover the differences.

  3. Sad thing is that TD and BMO have made attempts in the past to post their best offers on certain maturities and it failed as a business strategy.
    From Nov 2002 to Aug 2004, TD had a “no haggle” 5-year fixed rate and they lost market share. (Search for BMO Nesbitt Burns report cerca 2004). After Aug 04 they went back to artificially high posted rates like the other banks.
    The fact is, as a strategy, “negotiated discounts” on an individual basis is more profitable for the banks than the “everyday low price” strategy of lenders like ING Direct. Especially on renewals, banks know people are reluctant to switch lenders. Banks profit on that reluctance.

  4. As someone who haggles for their mortage rate, I welcome this system. When banks charge higher rates overall, they can afford to give me an even lower rate when I negotiate it properly. If they gave their lowest possible rate to everybody, they’d make a lot less money and those of us that are willing to negotiate end up paying higher rates. Just my 2 cents..

  5. Banks clearly know the pro’s and con’s of what they do, they do so for one reason in the end they feel they make more money this way. Unfortunately in these times shopping for a rate with a big FI is no different than going to the Brick, Leon’s etc. you have to negotiate and haggle for the best rate or find the help of an mortgage agent you trust and are willing to work with.

  6. When you ask a bank for their best rate and they later lower that rate to meet/beat a competitor THEY HAVE LIED TO YOU!
    There is no way to sugarcoat it. THEY HAVE LIED.
    How anyone can trust their biggest debt to someone like this is beyond comprehension.

  7. The game continues. I fully expect the first rate offer to be the worst. If it wasn’t I would be shocked. I usually welcome negotiating. This is not personal simply business. When my personal bank doesn’t come up with the best rate I remind them that my loyalty is based on their performance.
    Neekolas
    Call me cynical but, when a mortgage planner (from the bank) recommends setting up an RESP for my kids or a TFSA the last person they are thinking of is me.

  8. TheTruth: Don’t twist the facts… there are lots of people reading here that can be easily influenced.
    It’s not a lie when a Financial Institution offers you their best rate and through some negotiation it goes lower.
    They are offering their best rate given a given set of circumstances. For example, if a client offers to upgrade their Visa card to a Premium, I bet they can get an extra 0.1% on their mortgage renewal. If someone offers to transfer-in some investments, I bet they can get an additional 0.1%.
    I actually have found negotiation to be healthy and it uncovers additional needs or strategies that are beneficial. It more than compensates for a few percentage points that a broker can find.
    ANYONE WHO TRUSTS BROKERS IS BEYOND COMPREHENSION TO ME. They can only assist their clients with one piece of their financial situation. They are unable to assist their clients with banking accounts, RESP’s, RSP’s, TFSA’s, retirement planning, Visa’s, and overall Insurance needs.

  9. Pistolpete: I absolutely agree. When my Bank Financial Planner suggested that we discuss RESP’s, I said: “One more product…This will make you more money right??”. She said YES! ABSOLUTELY!
    But what’s wrong with that?
    Why do only 15% of Canadian parents have RESP’s????? Especially for 99% of parents, RESP’s have no negatives.
    The reason is simple…THE LAST PERSON MORTGAGE BROKERS ARE THINKING ABOUT IS YOU!!! They just want the mortgage deal done and their clients are on their own for the rest.
    Those clients are left in the dark struggling to find advice on the other pillars of their overall finances. Nobody knows their overall situation, and therefore cannot make overall recommendations that will save them money. Also, since the mortgage is elsewhere, instituations will not try as hard and will not assign their best people to satisfy those clients. They will focus on their loyal clints.

  10. Does anyone else find it comical and transparent how people here (like Neekolas) are trying to justify banks overcharging customers?
    Maybe the minority of people like the “game” of negotiating and have time for it. I for one do not, and I think most Canadians feel the same.

  11. Thanks to all for your viewpoints.
    Neekolas, as you can imagine, I have a slight issue with this following statement:
    “THE LAST PERSON MORTGAGE BROKERS ARE THINKING ABOUT IS YOU!!! They just want the mortgage deal done and their clients are on their own for the rest.”
    May I presume that statement was made in emotional haste? :-)
    If this were true, there would be no mortgage planning industry. Mortgage professionals put bread on the table by working in their client’s best interests. Referrals are everything in this business and brokers have no other go-to revenue source (investments, savings accounts, insurance, etc.). Nor do we have have a bank call center or branch to feed us business.
    Due to the sheer number of mortgage products out there, brokers need to specialize to do their jobs well–and we must provide the best possible service to stay in business. There’s just too much competition.
    It should be clarified that mortgage planners don’t intend to be experts in non-mortgage products. You don’t go to a general MD for heart surgery, and people don’t come to mortgage planners for investment advice. In complex financial endeavours, specialists generally get the job done better. (This said, many planners do work seamlessly hand-in-hand with financial advisors.)
    The broker business model hinges on individual relationships based on trust. Further to the topic at hand, professional mortgage planners earn that trust by doing the right things: saving clients time by quoting the best offers up front, providing personalized value-added mortgage advice, comparing all lenders instead of just one, etc.
    It’s easy to find exceptions and anecdotes to everything above, but they don’t change the rule. Canadian consumers are well served by the mortgage planning industry–which is, in this person’s opinion, the best in the world, bar none.
    Cheers,
    -rob

  12. Some institutions provide lenders a specific “average margin” requirement for loans. Typically a lender would quote slightly above the “average margin” for new business, allowing some room to move if needed. In some cases the lender may have to deeply discount to keep large A+ clients, but this can be made back on the margin on other deals.
    Typically, the loans I discount the most often leave at first renewal. So, I agree with some of the above comments, a relationship with clients, and sell other features and ease to do business. Rates are rates, there is far more to lending.

  13. As a bank mortgage specialist I offered a long term client 3.80% on a 5 yr last week. I had to work very hard to get it for my clients.
    The next thing they did was to walk across the street to a competitor who promptly matched it. Then they returned and asked me to do one better. They had simply assumed me to be highballing them and I gave them an unrealistic expectation of the real market conditions.
    Unfortunately I could not beat the rate of the other bank.
    I didn’t lie, I simply offered the best deal I could get and got burned in the process.

  14. Bank Guy
    I don’t doubt that you offered your client the best rate you could. Well done. Great rate by the way. However as I mentioned above this is business not personal. I would have done the same thing as your client (shopped next door). The best rate or most flexibility or……. wins.
    I used to think that I was setting up a relationship with my bank. However with the manpower turnover customary in at least my bank. I don’t have a chance to develop a relationship.
    Neekolas
    I don’t blame banks for asking for more business in return for a better rate…however I work hard for my money and expect to get the most out of it.

  15. I completely disagree with the original statement. Haggling is part of all sorts of business. Real estate buying is perfect example — not in the house price but in the agent’s commission! You might offer one client a break on your commission rate so that they make a deal. That is a given.

  16. Mike I wont speak for you but I personally can’t stand people who waste my time. If I am coming to you for a quote on a mortgage that means I want your BEST quote, not your “starter” quote.
    People who advise on financial matters have a FIDUCIARY RESPONSIBILITY TO MAKE THE BEST RECOMMENDATIONS POSSIBLE. Quoting me a rate that is needlessly high is a breach of this responsibility.
    If you like dealing with people like that then knock yourself out. It means you are getting an order taker instead of a trusted advisor. If you are okay with that then enjoy the 5/100% you save on your interest rate. Don’t spend it all in one place.

  17. I would like to comment on this from a completely different perspective.
    Lately a practice that some unscrupulous mortgage brokers have been doing for years has reared it’s ugly head again.
    Some mortgage brokers will advertise on-line, in print ads, in rate sheets to Real Estate Offices incredibly low rates so that they have the LOWEST rate offered that day let’s say.
    The problem is that the rate is not achievable for all borrowers that would come to them.
    For instance the most common tactic would be to advertise a rate that they would buy down using their commission or other incentive points offered by the banks. Let me be clear on the surface I have no problem with that if a broker wants to lower his commission and buy down a rate then all the power to you but don’t advertise that rate as something you will give to all customers.
    I have mystery shopped many brokers who advertise incredibly low rates (and I will not list the repeat offenders) but all mortgage brokers know who they are, and when you call them they may say something along the lines of “Oh you just missed that five year rate of 3.49% I advertised, but I could give you 3.69%”
    Where is the truth in advertising?

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