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Nix the Bonuses

toyota-yaris Suppose you’re a car salesperson and your boss offers you a $1,000 bonus if you can sell a Toyota Yaris for $50,000.

Would that get you excited?

Us neither. Who wants to stick a poor customer with an overpriced product to make a few extra bucks? (If you answered, “I would,” don’t bother reading further.)

Yet, it’s sometimes accepted practice for lenders to offer bonus compensation to sell mortgages at above-market rates. No offense to any of our lender partners, but this type of compensation scheme doesn't exactly scream of fiduciary responsibility.

It’s even worse when rates should be dropping. Look at our current market scenario for example.

On March 1:

  • The 5-year bond yield was 2.52%
  • A deeply-discounted 5-year fixed rate was ~3.69%.

As of yesterday:

  • The 5-year bond yield was 2.52%
  • A deeply-discounted 5-year fixed rate was ~4.29%

That’s a 60 basis point higher rate today, despite yields dropping almost 70 basis points in the last month. There’s no question that 5-year fixed rates should be lower than they are. Yet, most lenders are keeping them inflated.

Instead of lowering their rates, some lenders are offering brokers incentives to sell higher rates. This practice isn’t doing brokers any favours, and it sure as heck isn’t helping customers.

Most, in our business, would rather see lenders avoid incentives not aligned with the customer’s best interests. Lenders could then pass along lower rates and help brokers be as competitive as possible in the marketplace.


Counterpoint:  This isn’t meant to indict the lenders who offer these incentives. All are, in fact, very reputable organizations. The problem is, there are still competitive pressures (vestiges of yesteryear), that drive these rate-based incentives.

Moreover, in our current market, lenders have run these promotions expecting rates to rise, or remain stable. With yields plunging unexpectedly, certain lenders are now stuck honouring these bonuses, and maintaining higher rates to compensate.