We recently surveyed the mortgage rates of every prime lender in Canada. There are more than 400 of them.
Over 60 choose not to advertise their rates online and various others display only posted rates. Most of these lenders subscribe to a practice called “relationship pricing”—where you get mortgage discounts by taking other products from that lender (savings accounts, credit cards, credit lines, car loans, etc.).
It’s a process that requires you to haggle and often buy mediocre financial products just to get a fair mortgage rate.
When it comes to pricing disclosure, people hate opacity. It wastes their time. Modern mortgage consumers are web-driven information assimilators who demand transparency and instant understanding.
- have heightened sensitivity to cross-selling techniques
- are loathe to be manipulated, and
- crave simplicity (Attention deficit isn’t just for kids. It applies to everyone on the web.)
To that end, it’s surprising that so many lenders believe they can be successful by confusing mortgage shoppers. Do they really think people get turned on by relationship pricing models that require a spreadsheet to determine a mortgage rate?
Lenders with these approaches obviously don’t want to make it about the rate. They want to provide you an “integrated financial experience” and cross-sell your pants off. But few new customers have patience for that.
Most banks and credit unions that overuse the word “relationship” advertise something like: “The more business you do, the better your rates will be!” So the onus is on the customer to give to the lender up front.
It should be the other way around.
In reality, customers owe lenders very little, besides honesty. So if a lender wants your investments, insurance, non-mortgage loans and savings, it needs to earn that business by conveying compelling value that stands on its own merits. You shouldn’t have to agree to 3-4 non-mortgage products to get a great rate that you can get in minutes by calling a more transparent lender.
Now, if a bank or credit union wants to offer a conspicuously better rate, product or package than the competition, then customers should be willing to hear the relationship spiel.
Barring that, lenders need to advertise fair rates up front, build trust without making the client jump through hoops, and then start pushing relationship benefits. Demanding loyalty before the relationship is formed puts the cart before the horse.
If you’re a lender that refuses to advertise competitive rates, at least market semi-discounted rates that don’t completely insult people (like 3.49% on a 5-year fixed when the market is at 3.09%).
If you’re promoting 5-year rates at 5.24% with competitors at 3.09%, you’re relegating yourself to customers who are non-savvy, Internet-averse or non-prime.
Rob McLister, CMT