Broker says he can beat the rates offered by the banks because his industry is driven by a smaller profit margin
Keith Woolhouse
Sun
Times have changed since mortgage brokers were the last port of call for homebuyers who had been turned away by their banks for poor credit history.
That happened often 30 years ago when the mortgage brokerage industry was just getting to its feet.
Banks were happy to do business with people who had a decent down payment, a steady job and who could pay the mortgage and the other costs associated with owning a home. That was an era when traipsing around the banks for a lower rate was the norm and getting a quarter of a percentage point shaved off the posted rate was only achieved with something akin to begging. The posted rate still exists, but these days banks will lower it at the mere hint that the client will walk.
The banks still retain the upper hand where mortgages are concerned because everyone relies on them for their daily financial affairs. But the mortgage brokerage business is no longer Plan B. It’s booming as a one-stop shop with super-competitive rates that banks find hard to match.
Frank Napolitano, managing partner of MortgageBrokers.com in Ottawa, accepts that the client base give the banks an edge. “The majority of their clients are in their database, so they have the first opportunity and typically most consumers feel like the bank is where they should go.
“But if there’s one thing that every consumer should be shopping around for, it’s a mortgage. If a bank tells the customer not to go and see someone else because there’s probably nothing better out there, well, that’s the first sign that you should go and see someone else.
“What a lot of consumers don’t realize is that we have access to more than 40 lenders. We know every product that every bank has. Eighty per cent of our business is done with six lenders, and we don’t shop a mortgage application around. Our best offer means just that and I don’t want to know what the other guy is offering.”
On this day, Napolitano’s firm is offering 5.69 per cent for a five-year closed term for A-rated clients, who represent 80 per cent of first-mortgage. The posted rate among the major banks is 7.45 per cent.
Napolitano, who worked for 21 years in the mortgage department at TD Canada Trust, says he can beat rates offered by the banks because the brokerage industry isn’t driven by the same profit margin.
“Our margins are much smaller. The fact is we’re working with the banks, so we’re just an alternate channel of supplying funds to homebuyers. They pay us only if we put a mortgage on their books and our commission doesn’t change whether we place the mortgage at 5.69 per cent or 6.79 per cent. We’re compensated only if we actually give them business. From the banking standpoint that’s a positive because, as opposed to staff sitting in their branches not doing any business, with the mortgage broker they’re paying only when they get the business.
“We want the customer’s return business, so we’re after the best rate with the best features. The winner in all of this has to be the homebuyer, because why would anyone pay more than they have to for the biggest investment of their life?”
Napolitano offers this advice to mortgage hunters. “A clean credit history is your number one priority. As far as lenders are concerned that’s what matters most. It used to be job history, but no more. Today, credit is the first thing lenders look at because as far as they’re concerned it determines whether they even want to deal with you and it determines the interest rate. The greater the risk, the higher the rate.”
Napolitano says those under 35 are more accepting of mortgage brokers than older generations, who will first head to a bank.
“That doesn’t bother me. I’m old fashioned and I believe in the services that I provide. I encourage all customers to see their bank first and get their best rate. Then come and see me and I’ll give you my best rate. But do me one favour. I won’t ask you what the bank offered you, so don’t tell the bank what I offered. When they tell you ‘this is our best rate’, well it should be that and it shouldn’t depend on what a mortgage broker has offered.
“It’s great to go to your bank and to be loyal to your bank, but make sure you hold your bank accountable for making sure that they’re giving you the best possible mortgage from the standpoint of interest rate and features.”
© The Vancouver Sun 2008
