Are Mortgages Commodities?

Mortgages-Commodities Websters defines commodities as:

A good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors other than price.

Do most mortgages meet this criteria?  One could argue they do.

We say “most” because there are a few exceptions:

  1. There are a handful of truly unique products out there that deserve a slight rate premium.
  2. Mortgages with “normal” policies deserve a rate premium over mortgages with unusual restrictions (such as variable-rate mortgages that impose IRD penalties instead of just 3-months interest, or 5-year fixed terms that are completely closed for 3-5 years)

Generally, however, most mortgages of the same term are commodity-like.  That leads people to focus on the mortgage with the best rate.

To get a mortgage, though, you have to work with a human being, and that is where the commoditization ends. 

The service that mortgage professionals provide can range from minimal to outstanding.  A mortgage planner that is truly skilled is far from a commodity because there simply aren’t that many of them.

Take this example.  Suppose you come across a mortgage planner who does the following:

  • Researches every available lender based on your specified mortgage criteria (even non-broker lenders)
  • Presents the best rates and features he or she can find
  • Helps you pick the most economical term given future rate assumptions
  • Mathematically determines which mortgage has the lowest overall cost based on your 5-year and/or long-term goals 

This type of service adds value to the transaction because it can save the borrower money down the road.  Good advice is unique and it is not a commodity. 

On the other hand, mortgage “specialists” who don’t do these things are providing a service that is a commodity.  In fact, there’s a term for these people:  “order takers,” and they add very little value.

When someone adds little value in a competitive and commoditized market, they don’t deserve much business.  But, oddly enough, sometimes they get it anyway.

Has this ever happened to you?

  1. You go into a bank, ask the mortgage specialist for the very best rate, and he/she punches a few buttons and quotes you something
  2. You call a mortgage planner and he/she find you a better rate, provides warm and helpful advice, and spends time to help you sort out the many available options.
  3. The bank rep learns about the rate that your mortgage planner quoted you and offers to match it.

In this case, who should really get the business?  The rep who didn’t disclose their best rate up front, made you search for better offers, and provided no worthwhile guidance?  It would seem not.  Yet, people sometimes choose to stick with their bank anyway…out of convenience.

If this happens to you, take a step back.  If the rates are close, consider rewarding the professional who is upfront and tries hard to ensure you make the right choice.  Mortgages may be commoditized, but mortgage planners who add above-average value are anything but.

  1. Mortgages if done right can help people improve cash flow put kids through school and help with retirement dreams. This means some planning if all is offered is a mortgage then yes mortgages are a commdodity.
    A mortgage is usually the biggest expence every month. Next comes car payments etc. If the mortage is set up right one can recaputre the car paymnets plus interest as an example.
    When mortgages are offered with a written plan (which generally not offered by anyone else, then the interest rates is minor). Banks, mortgage brokers and financial advisors never help out beacuse it is hard work and many have no plans themselves!

  2. The authors maintain a very nice website, with generally informative posts. However, this type of post is self-serving in the extreme, and is arguably nothing better than pure advertisement. Perhaps this website would consider weeding out posts such as this one, and placing them in a separate link, entitled “why you should use a mortgage broker”.

  3. Ash,
    You missed the point. Mortgages are important and so is cash flow etc. If someone is spending the time on this then mortgages are not commodities. This post was to get people thinking.
    Brian

  4. Hi Ash,
    We welcome all feedback and appreciate yours as well.
    This post was meant to inform and motivate clients to seek out value-added up-front mortgage professionals.
    It is an opinion piece and I’m sure you’ll come across other opinions on this site that you might not agree with, depending on your own self-interests. We tend not to “weed out” articles to satisfy particular constituencies.
    Instead, we try to post articles that add general value. If you think this post does not add value then we welcome your comments as to why. Criticism with specifics is always better than criticism without.
    By the way, in the event you do work for a bank… We have a lot of bank reps that read CMT and we work with various branch reps that are truly outstanding at what they do. This post isn’t meant to indict all of them, just the ones that don’t add value or operate in an up-front manner. (The same criticism can apply to certain mortgage brokers!)
    Cheers,
    Rob

  5. Banks, mortgage brokers and financial advisors never help out beacuse it is hard work and many have no plans themselves!
    ?
    Post us your oil predictions again Brian LOL! Where you were wrong again!

  6. Hi Glasen,
    If you read the post again what you will find my post of July 2007 I talked about interest rates not likely to go up. (Could $100 Oil Spike Mortgage Rates?) I talked about inflation and I talked about the price of Oil which later I got wrong. So two out of three ain’t bad, over the last two years.
    Like Ash you missed the point about this current post, which is mortgages can be (if set up right) improve cash flow help people for retirement get the cash back on the cars bought etc. Advice on mortgages is always a good idea and can save a lot of time and money. Interest rates is a important but should not be the only factor. Banks may come up with some ideas only after the customer “shares” some new ideas (he/she learned) with the Bank. Instead the Bank maybe should have been more proactive.

  7. Hi. I have witnessed bank games myself, many many times. In my experience there are only two outcomes when dealing with banks.
    A) You ask a bank for their best rate and their rate is higher than you can get elsewhere, or
    B) You ask a bank for their best rate, they highball you, and then magically find a better rate when you show them a competitors quote.
    Either way they waste your time.

  8. Ash here again. I do not work in the financial services sector (I’m a surgeon), and responding to criticism by saying that the critic “missed the point” is more than a little disingenuous. I’ll also say that I am neither pro-big bank nor anti, and the same goes for mortgage brokers.
    I “get” that you are introducing the concept of added value, and arguing that mortgage brokers (good ones, as your post implies) elevate a mortgage from a commodity to a more personalized service, by dint of these added value aspects of their work. However, this is still pretty self-serving. I suppose your mission statement, if it might be called that, at the top left, includes “news on…mortgage brokers”, and I suppose with some tortured argument, this post might be classified as news. The bottom line is that one must wade through this kind of propaganda if one wants to enjoy your other (more interesting and insightful) posts. For me, this type of posts makes your site seem less impartial, and hence less credible. Best of luck.

  9. When someone collects a fee for “service” then they are bias, argue until you are blue in the face, but if you are getting paid you are biased, that’s the bottom line. I agree with Ash, this “article” is nothing more than propoganda, which unfortunately is posted all too often when there is no other topics to discuss in the industry.
    How about you talk about how easy it is to get a broker license in Ontario–2 months of easy course load and magic–you are a broker, not an agent a broker, just have 2 years underwriting, or agent experience under your belt, and you are offer to give the world mortgage advice with a license, and this is acceptable to CAAMP? How is that enough education? How about deal with some of those topics.

  10. Let me state that I am a mortgage broker, so that there is no confusion about where I am coming from in the following comments.
    The value-added proposition discussed by the authors of this article is indeed worthy of presentation on this site, especially in the context of the excellent work the authors have done over the past couple of years in presenting information about the industry to a wide audience.
    Mortgage brokers can add value, although some of them are merely clerks filling in paperwork without really making an effort to do so. But the value brokers add, far beyond simply quoting the best rates, is when they make sure that they have done their first job properly – which is determining precisely what a client needs/wants to achieve by obtaining a mortgage loan.
    There are many different mortgage products available (as witnessed by the numerous articles on this site about the different options available from various lenders)which include variations not only on terms and rates, but also on qualifications, property locations and types, insured vs uninsured products, etc.
    Once a client’s needs have been thoroughly explored, and the right product type determined then it is important to make sure that the lenders criteria are met in terms of borrower qualifications.
    Even if some mortgage products can be classified as commodities (such as a “standard five year term mortgage”) individual situations vary dramatically and before a client has been placed in a “standard” mortgage it should be clear that it fits the client’s need and is the best deal for the client available.
    There are lots of other issues related to mortgages as well, such as conflicts of interest based on bonus structures by lenders, preferred relationships, etc. Disclosure rules don’t begin to go far enough to illuminate the various conflicts of interest both by bank employees or by brokers.

  11. I am so surprised by Ash’s weird comments, what is she trying to prove? By the way, it is Robert’s blog and he has the complete right to choose what he wants to publish, if you don’t like it then you don’t need to read, I totally support him as I know how little bankers care about you, there answers are more like robot’s answers, they don’t try to bring the best for you, lot of people don’t have an idea what they are getting into, if they don’t try to go and find out. I think mortgage planners try to give what is best for their clients and I think it was wonderful post to let people know that.

  12. Canadianmortgagequestion,
    Next time you stop by your local bank branch to speak to on of their advisors or run into a bank mortgage specialist, ask them how many courses (not run by the bank) they had to take to advise people on mortgages, or other financial products….

  13. Hi folks,
    Thanks to each of you for your perspectives. They are very much appreciated.
    The truth is, professionals of all sorts are usually partial to their own profession. A New York Yankee writing about the Boston Red Sox is going to do so in a way that Sox fans may not always appreciate. Likewise, if RBC were behind this publication you’d see a totally different spin on things than you get from two mortgage planners from Horseshoe Bay.
    Mortgage planners join this profession because they believe in what they do for consumers. Melanie and I are no different. We believe in what we do and write about that on occasion, and will continue to do so.
    An article that casts a positive light on our profession doesn’t mean it’s not accurate. It would be nice if there were fewer comments about bias, etc. and more comments that honestly critique the article’s premises, which are:
    * That mortgages have largely become commoditized
    * That mortgage professionals who add value can make a “commodity” a non-commodity.
    * That upfront mortgage professionals who add value deserve clients’ business, irrespective of tiny rate differences
    This is ideally where the debate should focus, because blaming mortgage planners for being mortgage planners is like blaming a leopard for having spots. :)
    Cheers,
    Rob

  14. You still did not answer?
    How about you talk about how easy it is to get a broker license in Ontario–2 months of easy course load and magic–you are a broker, not an agent a broker, just have 2 years underwriting, or agent experience under your belt, and you are offer to give the world mortgage advice with a license, and this is acceptable to CAAMP? How is that enough education? How about deal with some of those topics.

  15. The best summary line in relation to this post was: “An article that casts a positive light on our profession doesn’t mean it’s not accurate”
    Instead of shouting ‘bias!’ or complaining about the source of the article, discuss what the post asks you to discuss.

  16. CMQ,
    Two comments on the same topic are sufficient. Thanks. Sometimes it takes us a while to respond due to other responsibilities.
    Per your question, overviewing industry training and educational requirements (for bank reps and brokers) would be a good topic. I’ve put it in our notes for future coverage.
    In a nutshell, I can tell you that most bank reps and brokers still learn this business on the job. And it takes a lot of time to be good because there are so many variables and instances where experience is invaluable. I really do wish there was more practical and in-depth training available throughout our industry.
    Rob

  17. The requirements for mortgage brokers in BC are a little higher than for real estate agents, in that the initial exam is tougher to pass.
    If a person is good at taking courses they can become a mortgage broker in a a couple of months. That’s true, however, they could also become a mutual funds salesman, realtor, life insurance salesman, etc. And in each case they would still be green as grass and need seasoning.
    Most brokers who are successful have substantially more training and education than the minimum required but the efforts of the industry to begin to establish a set of national standards is a good start, and should, in the fullness of time, result in better qualified and trained brokers.

  18. Bank reps do not claim to be mortgage brokers, and therefore mortgage brokers in Ontario should be held to a higher standard. Banks have code of conduct, ombudsman,etc, mortgage brokers have who–CAAMP-lol, come on biggest _____ on this industry is that CAAMP polices brokers, they turn there cheek, everyone knows this.
    [Edited. Please avoid accusations without supporting evidence. Thank you.]

  19. I am a bank rep who has been in the industry for almost 15 yrs. I enjoy the bits of info offered by this site, however, I think, at least for my part, the part of this article that may “irritate” someone like myself is the end. I completely understand the scenario being presented and didn’t take offense from the point of view this was presented (meaning asking the bank for rate and then going to a mtg planner). However, where this piece seems to become “biased” is the end. I agree that the rep who provides the best advice and service (whether it be bank, broker or mtg planner), should get the business. But you then use terms like “people sometimes stick to their bank anyway…out of convenience” like there might not be another good reason to do so. Also “consider rewarding the professional” and “mortgage planners who add above-average value”. The only thing I am trying to say here is maybe you might consider the manner in which you write so not to alienate those who choose to visit your site for the info. As well, writing in a manner that may create a bias amongst non-industry individuals who may be influenced in their own mortgage venue choices, may seem a little self-serving…intended or non-intended. If non-intended, maybe a little care might have been taken in the conclusion of your article?

  20. That is bull Tina. Banks advise people on the biggest debt of peoples lives. They should be held to the absolute same standard. But they’re not.

  21. Hi Jenny, Tina, et al,
    We’ll definitely touch on standards of conduct in coming articles. It’s a necessary discussion.
    Hi Lynn,
    Appreciate the feedback.
    This article is partial to mortgage planners over bankers. There’s no bones about it. That’s because we believe strongly that folks are better served by brokers, most of the time.
    Given that, there is a chance (in fact, a certainty) that stories like this will displease some of the competition.
    I appreciate your suggestion but it’s tough to write this type of article and not tick off someone. The premise is based on our honest observations and being genuine takes precedence over pleasing particular audiences.
    Regarding your quote of the article: “people sometimes stick to their bank anyway…out of convenience,” the word “sometimes” is central. Qualifiers like that are intentional, and in this case, meant to imply that different reasons may exist.
    In any case, please again accept my thanks for your honest feedback, which I know is intended to help.
    Cheers,
    Rob

  22. Why do you edit response below? Supporting evidence, do you have a list of the number of brokers that CAAMP has revoked a license for in the past 3 years? I bet it can be counted on one hand, there’s your evidence. CAAMP is a propoganda machine for brokers admit it and move on, just like TREB for realtors, it’s okay it’s just the way it is, but trying to argue it is not is absurd, it’s just business.
    Bank reps do not claim to be mortgage brokers, and therefore mortgage brokers in Ontario should be held to a higher standard. Banks have code of conduct, ombudsman,etc, mortgage brokers have who–CAAMP-lol, come on biggest _____ on this industry is that CAAMP polices brokers, they turn there cheek, everyone knows this.
    [Edited. Please avoid accusations without supporting evidence. Thank you.]

  23. Tina,
    When people make injurious accusations without supporting evidence they are edited.
    By your choice of words (“propaganda”) it is clear you have a bone to pick. That’s your prerogative.
    The word propaganda has negative connotations, so it is not a word we would apply to CAAMP, the Canadian Bankers Association, or any other reputable industry trade group.
    Rob

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