BMO Issues Warning to Brokers of What’s to Come
As if BMO’s 2.99% 5 year fixed rate that rocked the mortgage world wasn’t enough, they have now issued a public warning to brokers along the lines of “ready or not, here we come”. They’re looking to grow fins and be a shark in the market by building up their mortgage sales force and capturing market share from their competitors in this sluggish market. BMO has been experiencing a slow growth rate across their mortgage product line and aims to kick their growth into high gear. Since the mortgage market isn’t exactly taking off on its own, BMO expects that their more aggressive tactics will result in gaining market share from their competitors, aka mortgage brokers and others alike.
The Result of Increased Competition
In a numbers world driven by technology, consumers have become more resourceful and complete extra research before choosing a mortgage product. Technology has produced an educated mortgage shopper that has a general idea of what is going on in the market and what is available to them; sometimes they can start a pre-approval with as little as a click of a button in the comfort of their own home!
With increased competition due to a cooling off mortgage market, lenders and brokers may move towards a rate battle. But this battle can’t last forever. At the end of the day, everyone wants to make a profit and the costs involved in administering a mortgage can’t be ignored. Having said that, it will take some time for lenders and brokers to iron out the kinks and find a happy medium between higher rates/less clients and buying down rates/increased volumes.
Mortgage Broker vs. Bank
Banks have one lender that they use, themselves. Therefore they have one set of rates and one set of guidelines that they need to adhere to in order to qualify you for a mortgage. When you visit a broker they have access to multiple lenders (anywhere between 10-20) that they can use to find you not only the best mortgage rate, but the best product as well. Since brokers have access to various lenders, more times than not they will be able to find you a better rate than what you are being offered at your bank. Just remember, like anything else out there you sometimes have to pay a premium for a brand name product, a.k.a. a mortgage from a bank. It all makes sense!
What Really Happens Behind the Mortgage Scenes
Brokers have many friends they call lenders, but they only have a handful that they call their best friends. The broker/lender relationship is no different than any other relationship, both parties need to be mutually satisfied and some type of commitment needs to exist. What does the broker need from the lender? They need a great rate, a qualified and effective underwriting team to review deals efficiently and provide a fast turnaround time, a supportive business development manager that will answer when they call and they need a product that they believe in and can feel good about selling to their clients. If lenders can satisfy these needs, in return they will be worthy of the broker’s business which is really what they are looking for.
On the flip side, brokers also need to cater to the needs of their lenders. Brokers are measured on their funding ratios. The last thing that a lender wants to do is waste time and money underwriting deal after deal after deal that a broker submits, which do not actually fund. Brokers and lenders really do have a “you’ll scratch my back and I’ll scratch yours” relationship.
Lenders try to Win the Popularity Contest with Brokers
Apart from the rate, product and professional underwriting and management previously mentioned; some lenders offer an incentive to brokers for placing mortgages with them. No, brokers aren’t ‘bought’, but they do see an advantage at times with placing more deals with one lender. All broker incentives are based on funded volumes and in fact most of the incentive benefits are passed right back to the customer. How? Some lenders will offer a rate incentive so if your funding volumes reach $X.XX, you can then offer customers a discount on posted rates.
The lender wants deals, the broker wants the rates, when they work well together the broker can offer you a discount off of the rate… win, win situation!
RateSupermarket.ca Week in Review
We didn’t see any big changes in rates again this week, so when will they come? Your guess is as good as mine. To stay on top of the latest mortgage rate changes, follow us on twitter – or sign up for a RateAlert and we’ll send you custom mortgage rate updates in your area. The only changes that have happened over the last week were for the long term 7 and 10 year fixed closed rates which both dropped six basis points.
The majority of our visitors on RateSupermarket.ca, searched for the 5 year closed variable rate (46.2 per cent) and the 5 year closed fixed rate (40 per cent). Once again, followed by the 1 year closed fixed (4.1 per cent), 2 year closed fixed (4 per cent) and 10 year closed fixed (1.9 per cent).