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Mortgage broker assisting clients

Can Mortgage Brokers Compete with Low Online Rates?

As mortgage brokers, we should assume our clients and prospects have access to much of the same information we do. But sometimes they don’t, and in such cases we can focus on finding the best lender solution, feeling reasonably confident we will earn a full, non-discounted commission.

But more often these days, AAA-clients are well aware of how aggressively your fellow brokers and lender competitors are pricing their mortgages.

Recently on an industry Facebook discussion board, a practising mortgage broker asked of the other brokers: “If I asked you, as a client, ‘Why are the rates online different than what you can offer?’ What would you say?”

This sparked a bit of a debate.

Some industry members were quick to deride the online offerings. They suggested the client would experience poor service and be offered a no-frills mortgage. Others simply pooh-poohed the rates as being only for high-ratio purchases.

In my view, this is naive. It reminds me of the time, years ago, when discount brokerages first entered the Canadian securities industry. Many industry vets dismissed them as not real competition. They felt sure their high commission structure would remain in place. But now, a few decades later, the discount brokerage model is the industry standard. In fact, it is not even called discount brokerage anymore.

Mortgage brokers need to accept that low online rates are here to stay. We are going to have to adapt or risk seeing traditional brokerage market share shrink with each passing year. This year, we have also faced stiff competition from low-rate offerings from HSBC and BMO.

And at any given time, any major bank or lender can go all-in to win business from you.

These are all serious players who absolutely understand marketing and how to develop sales and delivery processes that make discounted mortgages a profitable business.

There are a few different ways to combat this.

1. Develop a niche that is far less rate sensitive

Rather than single-mindedly pursuing AAA-homebuyers, there are many niches far less congested with your competitors. Here are a few examples:

  • Investment properties
  • Private mortgages
  • Bad credit mortgages
  • Debt consolidation mortgages
  • Helping people from your country (or language) of origin
  • Mortgages for self-employed
  • Mortgages for people recently separated
  • Difficult mortgages and bank turn-downs
  • New to Canada

2. Change the conversation

Back to the discussion board question posed to the industry, one response from Jason Henneberry of Tango Financial resonated very well with me. Here was his response:

I have aggressively competed in the online space with the following technique:

Step 1: Meet the client where they are by letting them know you have that same low rate they are seeing online. It’s nothing special and all brokers are able to offer it.

Step 2: Tell them under what circumstances they can get that rate.

After you explain the product, let them know you’ll ask them their plans and, if it’s a fit, they can have it. This builds trust because you take the first step by sharing before they do and you give them the power in the conversation.

You’d say something like, I can do that for you, that rate is for a purchase with 5% down, primary residence, closing in 30 days. And there are some feature limitations that will impact prepayments and higher-than-normal penalties.

Step 3: Ask the client to explain their situation and remind them that if it matches what you just explained, and if they are comfortable with the feature limitations, they can have that rate.

And assure them that if it’s not their exact scenario, not to worry because you will work with them to get them as close as possible to that rate with the best overall deal based on their plans and needs.

Step 4: Let them explain their plans to you.

Ninety-five percent of the time, their situation won’t match and the client willingly moves out of the low-rate conversation into a more productive discussion around their specific plans and the types of features that are important to them.

Basically, they self-select into a more suitable product and move off the floor rates. On the odd occasion that they perfectly align with the low-rate offering, and they are comfortable with the feature limitations, then give them the low rate and take the hit.

It might be one out of 20 deals, but you win the client and their trust for life (which is worth more than your pride or any single commission, IMHO).

Step 5: That’s it… Follow this approach and you will win more often than not.

We’re mortgage brokers and we sell a complicated product that most clients don’t understand fully. They default to what they’ve been taught—that the interest rate is the most important differentiator when it comes to selecting a mortgage. It’s up to us to do better, educate our clients and not be afraid to have the rate conversation.

Most will tell you to take a full application before discussing rate. That’s not necessary. A quick three-to-five-minute chat is all you need to gather enough information so you can address rate head-on and early, build trust and win the client…as well as their permission to proceed further in the process with YOU, not the competition.

3. Be prepared to reduce your commission

Even if you do specialize in a niche, those rate-shopping clients will find you from time to time. You need to know how you will manage such prospects.

Some brokers are instantly dismissive of rate shoppers. They feel it’s a waste of their time and that the client will have no loyalty. They say the approval you get will always be at risk right up till the funding date.

While this is definitely true of some prospects, it is not true for all. Learn to weed out the ones who you feel are going to waste your time, but do your best to win the business from the rest.

Being attracted to the lowest rate does not make prospects or clients bad people. We all do this in other aspects of our lives—like buying or financing a car, a major appliance or furniture. At least initially, the buying process is based on budget and price.

If anything, we should understand the shopper mindset. And we know that we do not always make our final selection based on the lowest price—the topic of price starts the conversation and opens up other discussions about what really matters to the consumer.

On a daily basis, most mortgage brokers need to know what are the best rates available to them for each borrowing situation. And they need to know who the lenders are and what their buy-down policies are.

Do keep track of the rate update emails from your lenders, and use any and all tools that your brokerage offers.

We all know best rates differ depending on the situation. Have at your fingertips the lowest rates for the most common inquiries, such as:

Understand how much you want to make, at a minimum, for any mortgage you work on. Everyone’s number is different. Knowing this number will help you decide how much you are prepared to reduce your commission and/or offer cashback to the clients if need be.

In conclusion, it’s wise to accept that rate shopping is not going away. You need to figure out your plan to respond to such prospective clients. Consider developing niches that are not so rate sensitive. Decide where your comfort level lies and learn when and how to change the conversation.

This piece was originally published in Mortgage Professionals Canada’s Perspectives magazine (Issue #3, 2021).