The Rate Game


Well, here we are again talking about the rate game.  While providing our customers with the best interest rate possible is part of what we do, it is important to communicate that there is much more to a mortgage than just rate.  I’ve tried to break it down into a few categories for discussion and would love to hear your thoughts.

Why Isn’t rate the most important feature?

Whenever I had a client ask me for my best rate my response was always the same… “That depends… What’s the price of a yellow car?”  Obviously the answer to that is different depending on whether you are talking about purchasing a Ferrari or a Volkswagen.  It astounds me that so many people look only at price and not product. When you ask most people what the most expensive purchase they will ever make is, they will usually answer that it is their home.  While this may be true, it is also possible that your mortgage may in fact be the most expensive purchase you ever make.  Depending on your interest rate and how long you take to pay it off it is certainly feasible that your mortgage may cost you more than your home.  Let’s hope this isn’t the case but realize it is possible. With this being the case shouldn’t we pay the same amount of attention to our mortgage product as we do the home we purchase?

If you have been doing mortgages for any length of time you have likely run into that client who is restricted in doing what they want to today because either a poor choice or poor advice on their mortgage product in the past. This again speaks to the importance of selecting the right product based on your client needs.

The Buy-down game

This is another losing proposition in my opinion.  It is ultimately not good for the agent or the consumer. If you think we are paid too much then fine, decide what your services are worth and make the difference a standard buy-down.

One of the perils of this tactic is that it calls into question the very need for our services.  If all we are is low-rate portal sites why do our suppliers (lenders) need us?  Wouldn’t it be more cost effective for them to simply build a discount website as a distribution channel?  Obviously not a great option for the broker but what if you are a consumer?  If you are a consumer reading this you may say “who cares?”.  Well, one of the reasons you should likely care is the fact that anything that jeopardizes the broker channel also jeopardizes the likely hood of future competitive rates and products.  When I used to work for one of the major FI’s selling their mortgage products we were luck to get 50bps (1/2 percent) off the posted interest rate.  Today the average discount for a brokered mortgage is somewhere around 150bps (1 1/2 percent).  That is a substantial difference and a direct result of the competitive nature of the marketplace. Don’t believe me?  Then how about the Bank of Canada?  Have a look at this paper here. Without a healthy broker channel discounts are likely to decrease.

Helping your consumer understand

Often times when a customer calls for your assistance it is after they have spoken to their bank and all they want to discuss is rate.  When this happens it is important to help them understand that there is so much more involved than that.  I would often continue the conversation by asking them if their bank talked to them about…. Fixed rate, Variable rate, Open, Closed, Prepayment privileges, Payout penalties, Mortgage reduction strategies, etc.  The answer is often “No”.  I would usually respond with a “Yeah, thats what I thought, we’d better get together to discuss options”.  You need to establish yourself as their “Trusted Adviser”, the one that truly cares about their needs and will take care of them as best you can.  It is not often that we, as brokers, can’t get them a better rate then they might otherwise get but we need to establish that Trusted Adviser relationship first.

The Bottom Line

If we want our channel to continue to thrive and survive we need to do a better job at becoming advisers to our customers.  We are the victims of our own success, for years we have talked about pricing as the main advantage of the mortgage broker. That needs to shift.  You all know we offer so much more than just rate.  Make sure your consumer knows it too. Use case studies, testimonials to share with potential customers the value of the service you provide.  Are most of the testimonials you would receive from your clients simply “They got me a great rate”? I think it is likely that most of your customers (if you are doing a good job) would say much more about the service you provided with an “oh, yeah, they also got me the best rate”.

One of the stories that I have is based on one of our agents who encountered an individual who was going to go back to their bank because they ‘matched’ our rate.

Scenario:  Client called because the RBC was “Screwing him on rate”, his words not mine.  Condition date was two days away.  We obtained a commitment within 24 hours, requested documentation from client who confirmed that he would send.  Advised that RBC had everything but that they were just “Screwing him over” and that he would send docs.  Client left message after hours advising that RBC had matched rate and he was staying with RBC.

Solutions: Position your client that the bank is going to match your rate but explain to them why you need to do their mortgage for them.  In this case the client was adamant that he was being “screwed” so the appropriate positioning would have been something like:

“Joe I understand completely how your loyalty is being taken advantage of.  You need to understand that they WILL match my rate if you give it to them.  I need you to give me a commitment that we will work together.  If I lost every deal that the bank “matched” I would soon be out of business.  If I go out of business that means that the bank can continue on their merry way “screwing” you and the rest of the public because you will have no alternative.”

Clients typically don’t care if you are going to get paid or not, but they do care about keeping the banks competitve. This is just one more way of dealing with a rate shopper.

Use statistics and facts to position and explain to your clients.  In the Bank of Canada study I referenced earlier they cite: “The results indicate that high-income borrowers pay more for their mortgages, as do loyal consumers, consumers who search less, and those that value large branch networks”.  That is powerful stuff to mention when you are dealing with high income or potentially bank-loyal customers.

I have also done presentations on utilizing some of the CMHC consumer survey statistics to assist in the sales process.  If you haven’t done so, review that survey and see what is really important to your potential customers.

10 Responses

  1. Scott Dawson says:

    Great post as always Mike! More mortgage brokers need to read your posts and learn that we have to offer more of a value proposition than just a low rate.

    Sadly companies like Lendwise and lenders that offer so called quick close specials make it easy for less relationship based brokers to just sell on rate.

    I believe it was Greg Williamson who said it best, “Cutting your commission is just a race to the bottom.”

    Of the brokers I work with whom have been in the industry far longer than I have, not one of them built there business by giving away their hard earned dollars. Any broker that does won’t be in this business for the long haul. I prefer to take the route of working with my clients for life and if that involved buying down or giving a piece of my income away on every deal I wouldn’t be in this business very long either. And that’s not fair to my clients.

    Keep up the great work!


  2. Mike,

    What a great article! As mortgage specialists we have a fabulous opportunity to educate clients and become their “personal mortgage planners”.
    We need to value our services and not give our commission away by buying down rates and paying for legal fees. If we don’t value ourselves, how can customers?


  3. Dean Koeller says:

    Mike I really appreciate your leadership and your wisdom that you are willing to share to help build, grow and maintain our industry. It is going to take good work and thought to change our industry around and make it what it needs to be.

  4. Karen Boies says:

    Hi Mike, wow this is an awesome article. Thank you for sharing your knowledge and experience. Certainly you have covered the many great benefits that our clients receive by working with an expert in the field and by having MB’s competing with the banks for the opportunity to be of service to them.

  5. Mike Lloyd says:

    Great article!
    I challenge all of you to remove rates from your websites and advertising! If you believe in your role as a mortgage planner/specialist/expert etc., why do so many of us still have rates as the first thing you see?

    • Michael Cameron says:

      Thanks for the comment Mike. I love that idea! Although, I must admit I did go to your website to test you. You passed 😀 Well played. I’m going to revisit our company web site. Appreciate the feedback and a great demo for those that are skeptical that you can be a good broker without focusing on rate

    • Scott Dawson says:

      Haven’t based my marketing on rates since I began as a broker. In my opinion if your only value proposition is a rate you’re not offering much to your client or differentiating much.

      The best part about not posting rates on my website is I don’t waste my time fielding questions from rate-shoppers and I can focus more on providing a valuable service to my clients.

  6. Harold Hagen says:

    Mike, thanks for providing this clarity to the industry. As a newer associate, I can see the discrepancies in the industry today, and common mentality of the average consumer bent on how much their monthly payment will be, forgetting or not fully comprehending the bigger picture, and certainly not informed on the total costs of a mortgage over the longer term. We are in a position to make a positive difference for our clients, main reason I became an associate. Thanks again for leading the charge!

Leave a Reply

Please type the characters of this captcha image in the input box

Please type the characters of this captcha image in the input box