A Few Misconceptions

Boomer-and-Echo-Mortgage-Brokers-ArticleMisconceptions occur in every business and the mortgage business is no different.

A recent example is this post by Boomer & Echo (B&E), a prominent blog that we typically enjoy. In it, B&E opines on why not to use a mortgage broker.

In the piece, the author gets some stuff wrong. As often happens, we came across it in our weekly blog scan and feel obliged to offer some counterpoints.

B&E makes four claims. They are:

  1. Brokers push 5-year fixed rates.

    Brokers sell a higher ratio of variable-rate mortgages than bank salespeople, and have for quite some time. That’s per executives we’ve questioned at banks with both broker and retail channels (e.g. CIBC and Scotiabank). In general, however, all mortgage professionals (bank or broker) sell a lot of 5-year fixed product. It’s the most popular term (has been for decades), it’s the easiest to qualify for, and it has the most competitive discounting (albeit, not presently).
  2. Loyalty to your bank pays.Counterpoint:

    The Bank of Canada concluded exactly the opposite (more). To summarize, its research found that existing customers pay more than new customers. What’s more, no one lender continually has the best mortgage options. By comparison shopping, good brokers can save homeowners interest and identify the lender with the right flexibility/value tradeoff. The best brokers provide expert term analysis, proper deal structuring and helpful strategies to reduce a borrower’s amortization.

  3. Bankers have better reputations

    Facts: The RBC specialist incident last April proved that reputation should be judged individually, not by virtue of where a mortgage advisor works. Generally, brokers and bank specialists are both paid by commission and the commission is similar whether they sell a 5-year fixed or variable. Neither is holier that the other in that respect, except that bank reps are hired to push only one brand.
  4. You’re better off doing it yourselfCounterpoint:

    We have visions that people will someday get a mortgage online like they buy a stock at iTrade. But we’re not there yet. Good brokers provide counsel that saves time and money. Do-it-yourselfers sometimes discount the value of advice, mesmerized instead by brokers/bankers who can save them a few basis points in rate. For most, that’s a mistake because:

    • Few individuals grasp the mortgage math needed to perform proper term selection. Term selection impacts borrowing cost far more than rate selection. A “good rate” alone does not equal a “good deal.”
    • There are lots of creative techniques that skilled advisors can use to help people whittle down principal quicker.
    • Lenders rarely disclose all of their mortgage restrictions until you sign their contracts. Brokers know the benefits and pitfalls of multiple lenders, and advise borrowers in advance.

It is possible to pick your own investments, do your own taxes or write your own will, but people still hire financial planners, accountants and lawyers. There’s only so much time in a day and we can’t specialize in everything.

In all of those industries there are great and not-so-great practitioners. Brokers are no different. Interview several before picking one. Ask questions like:

  • Which lenders they use most often and why
  • How long they’ve been in business full-time
  • Why their term recommendation is mathematically sound for your specific needs.

Sense if you can trust them. If they seem to care about you, are competent and make you feel comfortable, you’ll be glad to have them on your side.

Rob McLister, CMT

  1. One of the banks (TD) I use for chequing, investments etc. does not even offer conventional Mortgages. They do offer collateral loans which I am not interested in so its not even an option to offer my business to them.

  2. Hi Rob, thanks for offering your counter-points here.
    My post was inspired by an article that I read about reasons consumers should use a mortgage broker where the author later asked, “why wouldn’t anyone use a mortgage broker?”.
    To clarify, my article is titled “Why I Don’t Use A Mortgage Broker”, not “Why You Shouldn’t”. I think it’s an important distinction.
    You’re right, there are good and bad practitioners in every industry. A trusted expert in any industry certainly offers value.
    Perhaps my perception of brokers is clouded by a few bad ones that I’ve met over the years.

  3. And yet one more reason we need a mechanism to separate the good brokers from the rest and hopefully weed out the bad ones.
    To the “good ones”: You need to step up and demand more. More from our associations, in terms of who they accept and who can be ‘accredited’. More from your brokerages in terms of who they hire.
    If we work diligently together we can change these negative perceptions.
    Thanks for doing your part Rob.

  4. Echo:
    I read your article and the title seems irrelevant. What you’ve done is portray your claims as fact, when they are not. It is implied that you believe others should consider your arguments when deciding to use a mortgage broker. Fortunately there are respected resources that offer consumers a more balanced view, like this one.

  5. Don’t forget the point that mortgage brokers are required to be licensed and are held accountable in most provinces by a government agency ie FICOM in BC, bank specialists and bank employees are not as they fit under the umbrella of the bank and only held accountable to that one institution they are paid commission or salary to bring business to.

  6. @D Butler
    Again, I made no claims that my opinion should be considered fact. I gave my own personal example of how I managed to guide myself through the process of selecting a mortgage on my own without the help of a broker.
    The fact that the “balanced views” are all coming from mortgage brokers speaks volumes.
    I respect differences in opinion, and I certainly respect the authors of this website and their right to disagree with me.
    But I stand by what I wrote, and I believe that people should learn everything they can about their financial decisions, especially when it comes a mortgage, which is one of the biggest decisions we will ever make.

  7. I must say, I’ve always used a mortgage broker and they’ve always recommended variable while giving options for fixed. I didn’t get results using my bank. I often watch this site for posts as there is always good information.

  8. I wasted my time with MANY brokers…not returning calls, unrealistic conditions, loads of paperwork required and giving me recommendations that wouldnt make sense. My banker knew exactly what I WANTED and made sense for ME. As for this article…makes sense to me and Im the consumer!!!

  9. Why is it that when an article is printed from the point of the broker stating “the banks are this and that, don’t use a bank mortgage representative for your mortgage blah blah blah…” it is always true and supported factual info (yeah right), but when an article is written from the other side, about the reasons to not use a broker, the ole’ “you portray your claims as fact, when they are not…” excuse comes up. This is clearly a pure rebuttal to the article (and many articles) published by brokers about the “evil banks reps”. Just remember, if the banks pulled the plug on the broker channel, the broker market share (which is decreasing based on year over year numbers…fact) would shrink even more.
    I’ve been in this industry for over 15 years,in various roles as a bank rep, broker, and lender, and have heard more misleading crap from clients about what brokers told them than what bank reps have said (Cue “remember RBC rep in BC who printed the article…blah blah blah). JUST MY OPINION, go ahead, tell me it’s wrong.
    You sure can give it but can’t take it eh?

  10. A little bit of false statement checking:
    You say : “Lenders rarely disclose all of their mortgage restrictions until you sign their contracts. ”
    Lenders cannot hide the restriction until you sign the contracts. They have to be in the contracts that you sign … therefore, they are disclosed BEFORE you sign them. It is up to the consumer to ask for them before meeting to sign OR dont make one’s final decision until you get the final contract and read all the restrictions. Laziness on the consumer is not the same as a lender not disclosing. It is not the lender’s fault for not reading the documents that they sign.

  11. Hi HCG,
    With respect, there’s nothing false about it. Mortgage restrictions must be disclosed in the charge terms that you sign. The problem is, all of a product’s shortcomings are seldom disclosed in advance by the lender (voluntarily).
    For example, rarely will you get a lender calling you up before signing to say: “Hi Ms. Borrower, Did you know that we will use the posted rate to calculate your IRD penalty, potentially costing you thousands more versus a lender that uses discount rates?”
    Won’t happen…and that is just one example.
    If a consumer is well informed he/she will know what restrictions to inquire about. But you know as well as I, people are not mortgage specialists. People come to mortgage professionals to guide them around hazards.
    In many cases it’s not laziness. People just don’t know how the system works until they read through the contracts. A good mortgage planner will advise folks of pitfalls well in advance of the signing stage.
    All the best,

  12. Agreed. The qualifications to get a license these days are way too easy. I was required to take the very first course in Ontario when it was part of Seneca’s old Financial Services program and the failure rate was like 70%. People complained it was too hard. Then they made things easier and allowed organizations like IMBA and a handful of others to offer the course over a 3-day period! Outrageous! And that’s not even speaking of the fact that AMP and even IMBA’s designations are completely useless and so are their continuing education courses. They should look more to the CIFP and fee-only financial planners and how they differentiate themselves from your average adviser at the bank who only took a $150 mutual funds licensing exam. Make it difficult for people to pass the course.

  13. Finally had the opportunity to look over Echo’s post. Lots of nonsense there driven by preconceived notions and allegations taken out of thin air.

  14. I just received paperwork from my broker for a TD loan. There is check box to opt out of the collateral loan (“NO, please register for loan amount”). Am I missing something? I definitely don’t want the collateral charge.

  15. This happened to us. We got a mortgage that allowed only one lump pre payment per year. The bank never told us this ahead of time. We learned after the fact that most banks allow several pre payments during the year. I figured our lawyer would have said something when we signed but nope.

  16. Hi Jo, as of last year, TD only issues collateral loan mortgages which are not assumable if you decide to change lenders on renewal. In such instances, the collateral charge needs to be satisfied (paid out) and a new charge registered, usually at the homeowner’s expense.
    A conventional mortgage is easy to transfer as no new legal work to draw up a new mortgage is required. See link where such is discussed in further detail:

  17. Lenders and Lawyers alike skim over paperwork and consumers are usually just grateful to get the stuff out of the way, happy for their purchase or refinance. After all we are all human. It’s no ones fault really….rather it is everyone’s( bankers lawyers lenders etc) responsibility to disclose… after all consumers are people too. Ask yourself how many times have you sat in a law office and signed the papers and didnt have a clue what you were signing?
    Consumers are responsible for what they sign I agree… but banks and lawyers ( don’t forget they sign the papers at a law office) surely are responsible for explaining any unusual or other circumstances to them and making sure they are aware and understandthe terms and conditions. The problem is consumers often dont have a clue what to ask or how. As someone said we cannot be experts in every area of our lives and this is why a good broker will make a difference.
    Banks are a business enterprise just like anything else. I know I am an exbanker of 22 years.( 10 years ago)with 32 years in the industry and no Im not old lol
    A good banker, broker and lawyer ( after all why do we pay them so much to witness our signature?) should be explaining in as much detail or in an email or in writing that is easy for a consumer to understand ( preferable for a paper trail) exactly what the terms are.
    I know I do
    Just my 2 cents worth

  18. Rob makes some excellent counter points here. I actually hold a mortgage broker agent license, and I too thought the original article was offside, but I let it go as generally I enjoy the Boomer and Echo blog – and it was, after all, only Robb Engen’s opinion.
    I happen to have similarly negative opinions about stockbrokers, mutual fund sales people, and “investment advisers” – and I used to be all those things myself !

  19. Arby, The facts speak for themselves. Your critical and anecdotal opinions have done nothing to support your position, which is presumably that Boomer’s article is a fair representation of the facts.

  20. really?: 1 mistake by an individual rbc rep and you guys hang onto it like cold death. let it go already. if you decide to go after another group of competitors then find something else to hang your hat on already. the fact is the banks sales forces are highly motivated, competative and offder a solution for many clients. they also offer products not available through the broker channels, lines of credit, 2nd position mortgagges and lines of credit. the list goes on.
    Please note:I dont work for RBC. just tired of the lambasting of 1 rep for a 1 time mistake….if you wish to continue on this avenue of discussion why not provide a monthly accounting of mortgage broker infractions and those brokers who lost their licenses due to improper practices.
    lots of brokers arte ethical and offer solutions. but they a limied in their overall offerings in some respects.

  21. > “let it go already”
    No one has posted about this for a month. Maybe you should follow your own advice.
    > “they also offer products not available through the broker channels, lines of credit, 2nd position mortgagges and lines of credit.”
    Brokers have all these products from more than just one lender.
    > “why not provide a monthly accounting of mortgage broker infractions and those brokers who lost their licenses due to improper practices.”
    Maybe this website should do the same thing and provide a monthly accounting of bank salespeople who get fired due to improper practices? Although, I’m not sure what purpose that would serve.
    > “(brokers are) limited in their overall offerings in some respects.”
    You are kidding right? Bank salespeople can only sell their employer’s mortgages. If that is not limited I don’t know what is.
    If you are looking for credibility I would offer two suggestions:
    1) Try to add some balanced facts to your arguments.
    2) Learn to use your spell checker.

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