A “Good Rate” is a Lower Rate for New Brokers

What’s a good rate? Depends whom you ask.

According to a recent Maritz poll, if you ask a new broker you’ll generally be quoted a lower rate than if you asked a veteran broker.

What-is-a-good-rate

(Click to enlarge)

Maritz’s survey seems to show a clear link between the rate quoted and a broker’s years of experience. Newer brokers, for example, define “good rates” as being half a percentage point less than brokers who have been in the business 20+ years.

We asked industry experts Gary Siegle (Regional Manager, Invis), and Jim Murphy (President, Canadian Association of Accredited Mortgage Professionals) for their take on this data.

Gary-Siegle-Invis“In the last 4 years the focus on rate has become more significant,” Gary told us.

He said that’s likely due to “intensified competition from banks” and greater availability of rate information in the media and online.

“This, in turn, has led our newer brokers to focus more on that one aspect of the transaction, whereas more experienced brokers are able to satisfy the mortgage consumer by providing a complete service package where rate becomes less important.”

Jim-Murphy-CAAMPJim Murphy says newer brokers sometimes quote more competitively because they have “less experience with other mortgage terms or features, including things like portability or prepayment options.”

That makes it harder for novice brokers to give guidance on the pros and cons of those terms and features. Many, therefore, gravitate to what is easiest to compare: rates.

Gary notes another key fact in that, “More experienced brokers also get more repeat customers who value the relationship with their broker.” In those cases there is “less focus on rate,” he says, “and more on the overall fit of the deal.”

In a similar vein, Jim says, “While rate is important, perhaps more experienced brokers are providing advice and expertise—(which is) an emerging market trend that differentiates the broker.”

One area where expert guidance truly pays off is with term selection. We sometimes sound like a broken record when we say this but it’s true: Getting the best rate can save you hundreds but choosing the wrong term can cost you thousands (Thanks to Calgary broker Judy Shilmar for teaching us that way back when…). Improper term selection almost always amounts to more interest lost than a 10-20 basis point rate advantage up-front.

We’d also point out that even though seasoned brokers might feel their service is worth a higher rate, that doesn’t mean they will not quote aggressively. The competitiveness of your broker or banker is totally dependent on the individual.

What’s more, established brokers often have the best volume-based “status” with lenders. That’s key because great rates often (but not always) require such status.

In closing, we asked Gary point blank if he thought consumers get better rates through newer brokers. He very correctly pointed out: “Within our industry, most brokerages have access to the same lenders with the same products and rates; so I don’t think those using a newer broker would necessarily get a better rate.”

All told, interest rates are but one part of the mortgage puzzle. There are any number of mortgage restrictions that can make a low rate far more expensive than you bargained for.

“Most experienced brokers, and consumers themselves, agree that there is more to a mortgage than the rate,” said Gary. “There is value to the consumer in getting good advice, in the ability to review more than one product option and in the convenience of one-stop shopping, to name a few…”


Sidebar: The above notwithstanding, it’s our personal observation that brokers who are engaged in the Internet and track the rate market closely are generally the most competitive with advertised rates. That anecdotal finding is based on the dozens of broker websites we monitor when creating our own internal reference rates. When juxtaposed to the advertised rates of long-standing brokers we follow (who we won’t name), there is often a 20+ basis point rate difference. Hence, to the extent that net-savvy market-engaged brokers are newer brokers, Maritz’s findings are not surprising one iota.


Rob McLister, CMT

  1. Hi Rob:
    I’m pleased to advise that Gary Siegle is VP Sales Western Canada for Invis as at December 9,2011.
    My day begins with reading Canadian Mortgage Trends, the most informative source of what’s happening in our industry.
    Keep up the great work…
    MERRY CHRISTMAS AND HAPPY NEW YEAR !
    Bill MacDonald,
    Invisian

  2. While I agree that advice in regards to term can be very important, I find it difficult to agree with your take on features such as prepayment and portability as something that an experience broker brings to the table.
    Most lenders have standard terms in this regard with minor variations that even new agents/brokers can quickly become aware of. For most home owners with a mortgage prepayment is a minor or non factor. Portability is important but simply being aware of which product does not allow portability or is limited in its application quickly mitigates this as a real deal breaker.
    Perhaps one thing to consider is that newer (and perhaps younger) brokers are networking in younger circles with applicants that are more net savvy. This in turns creates the need to compete with rates as the customer can easily find low rates while riding public transit, surfing the net at work or any place with internet connectivity.

  3. The rate is still the most important factor for me.
    Prepayment options also are, but the Most Important is the rate.
    We start with the lowest rate, then discussing the other options.

  4. A savvy buyer never blindly trusts the sales arm of any transaction and especially when commissions, sales points or bonuses are involved.
    I laugh when Brokers say we offer a free independent service at no cost to our clients. Service and sales advice is always free until you commit to buy and possibly pay too much!
    The best negotiators price from the bottom up, starting with the lowest price/rate available and move up from there putting a measured value on the options/terms available and most relevant to their situation before agreeing to them.

  5. Hi Adam,
    I know what you’re saying. Prepayment amounts and portability are easy to compare on the face of it. RBC has 10% lump-sum prepayments annually while TD has 15%. That part is straightforward, as is the fact that most (but not all) lenders now offer a reasonable degree of portability.
    What’s not so obvious to some newer mortgage advisers—or older ones who haven’t previously used a particular lender or product—are the particulars that apply to those policies.
    We continually hear from clients who were put into mortgages with restrictions they didn’t know about. They should have read and understood their approval/contract but that doesn’t exonerate the mortgage professional. Very often it’s too late to change lenders when you learn about restrictions on closing day.
    As a simple example, some lenders allow prepayments once a year or on a specific day each year. That can be a real disappointment to homeowners who planned to prepay large lump sums on two or more dates during the year. It can also be the tie-breaker when choosing between two similar lenders.
    On the topic of portability, there are lenders who are overly restrictive with the time they give borrowers to close on their new property. There are also lenders that don’t let you blend and increase without paying a penalty. As well, there are lenders with fully closed terms or extra fees for early termination (beyond the discharge fee and penalty). Stuff like that can make a real difference to homeowners planning to move before their term is up.
    There are obviously countless other mortgage restrictions that can impact mortgage choice, but only if a borrower knows about them in advance.
    Cheers…

  6. banker in an ivory tower
    Seriously? That’s a pretty simpleminded generalization. It’s as silly as implying that bank representatives always put their commissions before the customer’s best interest. You don’t get ahead as a broker by doing the wrong thing.
    Speaking for myself only, my clients get the lowest rate that matches their requirements. Always. I may get lower finders fees than I could get otherwise but our office also receives a steady stream of referrals from happy clients.
    The problem with your “advice” is that laypeople don’t know what they don’t know. You’re telling them to evaluate “options/terms available and most relevant to their situation.” Great. Unfortunately maybe three or four out of 100 borrowers know the right questions to ask in order to do that.
    There is a reason people seek out professionals. Most of us don’t have the time or expertise to study and compare mortgage contracts from 40 different lenders. It’s just like investing. You don’t choose a mutual fund because it has the lowest management fee. Picking the lowest rate without getting the right advice is just as hazardous.

  7. you say : “You don’t get ahead as a broker by doing the wrong thing.”
    so I understand – you don’t get ahead without screwing the customers, a ?
    You also say : “three or four out of 100 borrowers know the right questions to ask”
    And you are so afraid that more may start knowing what to ask, a ? :)
    Then you can’t go ahead :)
    I bet every customer will be happy if you offer them better conditions than the other lenders out there. I think this is what brokering is all about. So once you provide those all better conditions, then I don’t care what your commission is at all. So my advice to you is to stop writing how you rely on uninformed clients and how if you don’t do “the right thing” you can’t go ahead.

  8. Well said Halifax broker. The best brokers are not salespeople. They are educators. They present all the information and help the client reach the right conclusion on their own.

  9. Hi Melanie & Rob, We are entering Christmas week. I just want to say as one of your dedicated followers, that I find your postings the most informative on the information highway. I refer anyone with whom I have a discussion on mortgate rates and trends to your site. That said, and although we have never met, I want to wish you the happiest of the holidays and a very happy and successful 2012.

  10. I think what they’re saying here is that it’s easy to find a good rate. The same can’t be said for good advice.
    Everyone agrees that a lower rate is indispensable but a lower rate doesn’t matter if the mortgage terms cost you more in the long run.

  11. “Observer”
    I don’t know how you managed to twist my words to your perverse end, but putting words in my mouth does not make your point.
    Mortgage planners rely on “uninformed clients” as much as a doctor relies on sick patients or a mechanic relies on car problems. We perform a service that guides homeowners through the often confusing and tedious mortgage process. Nothing more. Nothing less. I am proud of the value that mortgage planners provide to Canadians and would not want to be doing anything else.

  12. I have a question:
    I am about to buy a house that is 780,000. I am putting 25% down and I have two rates booked with different banks. 2.79 for 4 years fixed with banque National and prime minus 0.75 with Desjardins……..in this situation what is my best option…..

  13. I find it better to have a lower rate, especially for those who are just starting with their first job. That way, resolving the payments won’t be a burden. Just make sure that the new broker has adequate experience in paying home loans.

  14. fkamel, what would you rather have 2.25% for the next 2 yrs or 2.79%? bank prime is going nowhere for a very long time. not to mention no IRD penalty on the VIRM. 2.79% 4yr fixed sounds like BS to me nice try…..

  15. Don’t be silly. “The best brokers are not salespeople”. What they are ? Socialists ? Carrying about other people ?
    Of course “the best” care more about their commission. The ones that care more about education people aren’t the best brokers, they might be the best people, but broker is “to sell”, not to educate.
    as one broker said : “You don’t get ahead as a broker by doing the wrong thing.”

  16. Halifax Broker: I wouldn’t waste your time with people like Observer.
    While I think this forum is great for the open dialogue and terrific discussions, it’s clear that greater control has to be exercised with people who are merely here to aggravate and hijack discussions on a regular basis.

  17. Fixed rates have always been an insurance policy. Most of the time the premium is not attractive but since financial institutions raised their variable rates a few months ago, fixed rates are looking increasingly more attractive. We could see things go down with the economy and as a result the Bank of Canada may trim its benchmark rate and variable rates would decline. But keep in mind that lenders are under no obligation to pass the full cut to consumers. Recall that back in 2008 they didn’t do it, not initially.

  18. As mortgage brokers we follow code of conduct and maintain a level of professionalism which unfortunately is lacking in this article.
    Throwing “New Brokers” under the bus for what appears to be an attempt to compete with them will not gain you any more clients.
    A successful broker with experience is probably more likely to be growing their business and trying to attract “new brokers” to the industry. (Not discouraging them as in this article)
    That said, new brokers in the right organization have support from their team and would be working with others to get the mortgages done. Which would likely amount to more experience.

  19. you mean to limit opinions that are different than your own ?
    your best way to be the best – remove the opposition :)

  20. I’m with Lior. Is there a way to block “Observer”? Quite frankly he is a consistent annoyance and adds no value to the discussions he participates in.

  21. and I personally always will go to the broker with lowest rate first, other conditions later will be discussed. Which means the “old” broker doesn’t get any chance to get my business. :) Personally speaking :)

  22. Hi Robin,
    Invariably, articles that challenge the capabilities of new brokers spawn comments similar to yours. In this case, the story does not assert that there are no capable and professional new brokers. Moreover, it’s true that new brokers can gain some (but not all) of the benefits of experienced brokers by working closely with a mentor.
    At the same time, the facts stand on their own in terms of experience differences between newer and more seasoned professionals. The knowledge required to properly counsel clients is not acquired in months; it’s acquired in years. We know that because we’ve penned 2,000+ mortgage articles in the last five years. Yet, we continue to learn something valuable almost every day.
    When Melanie and I started as brokers we consumed every spec and morsel of mortgage knowledge we could come by. We also had the good fortunate of a knowledgeable and respected mentor. But, during our first year or so, I can tell you without hesitation that I would not have chosen Melanie or myself to arrange a mortgage if I were a client. There was just too much we didn’t know in terms of lender policies, term selection, product types, rate market dynamics, mortgage mathematics, closing procedures, etc. etc.
    Most new brokers (as well as mortgage reps at banks) have no idea what they don’t know until they’re in the business 1-2 years. They learn from doing and that sometimes involves making mistakes, which cost clients time, stress and/or money.
    It’s unfortunate that you’ve attached surreptitious motives to this piece. We’ve written on a lot of sensitive topics (bad lender policies, broker compensation, overquoting on rates, lender status programs, etc.). These stories are posted in order to bring important issues to light for consumers’ benefit. Please be assured that we’re surviving well enough that we don’t have to intentionally harm others to further our interests. On the contrary, everyone in our industry wants new brokers to flourish and advance the broker channel for years to come.
    It’s also worth reminding that the catalyst for this story (i.e., the survey data) was not of our own making. The goal was simply to report on it and try to add some perspective. Your comments, naturally, are welcome in adding to that perspective.
    All the best…
    Rob

  23. Halifax, my comment does not reference laypeople. I clearly referenced “savvy buyers” “best negotiators”.
    I always advocate the value of trusted professional advisors but what I suggest more strongly is that people research, educate and involve themselves more on such important financial matters instead of the 96/100 who often defer blind trust to the very people whose living depends on such.
    Such “simpleminded advice” is sound and 100% impartial advice.

  24. Very interesting article Rob. I don’t disagree with the statistics. . . BUT. .based on the first few years as an agent personally, you took what you could get. It’s tough to start in this business and you sold your services to whomever would listen to you. The most Effective way to get a potential client’s attention was rate.
    i guess you could say it got your foot in the door. When you start getting referrals and establish your network, your not quite as desperate for new business.
    That said, it is true that more experienced brokers can give more extensive advice. That can be very important for a lot of people. . .for others, they may truly just need a “good” rate. :)

  25. Observer,
    You certainly appear to have your own definition of what constitutes the “best” brokers.
    It’s my belief that all of us who make public comments (in CMT’s forums or otherwise) need to be careful when generalizing.
    In this case, that means choosing our words wisely to allow for worthy individuals who are exception cases to our personal beliefs.
    There is clearly more than one definition of “best” when it comes to brokers. And it doesn’t always mean the brokers with the highest volume. More on that in today’s article…

  26. Hi Robert and Melinie.
    I just wanted to wish your two and your team of writers a Merry Christmas and Happy New Year. I have been following you for years and you have made me a better, more informed broker because of your pursuit of education. I couldn’t Thank you enough for having this site that I can link to for my clients.
    Have a blessed 2012!
    Kristina Berg – Your Mortgage Diva.com (Coming soon)

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