April 29, 2013 — Steve Garganis There’s been a surge of ‘Best Rate’ sites popping up… Chances are, you’ve probably seen one or more of their online ads… You know the ones…‘shopping’ for the Best mortgage rates in Canada’ and ‘comparing Canada’s mortgage brokers for the best rate”. It does sound great… and it seems to be getting lots of attention… Even the media are covering and quoting these sites… And although I like that these sites promote how Mortgage Brokers can offer great rates, I’ve noticed some disturbing trends that you need to watch out for.
“I JUST WANT THE BEST RATE”
You say you want the ‘best rate’? Really? Or do you want to pay the least amount of money on your mortgage? I’ll bet it’s the latter. Make no mistake, these two things are very different and I’ll prove it. But let’s face it, the rate gets everyone’s attention.. Most people don’t want to hear anything beyond that.. until they get burned for $$thousands on the mortgage later on.
Now what if I told you that 80% of my clients were paying a rate of 1.35% during 2009 and 2010, would that get your attention? Of course. And it’s true. 80% of my clients were in a Variable Rate mortgage based on my recommendations….and almost all of them didn’t panic and lock into a fixed rate (like the BIG SIX BANKS wanted them to)…they stayed in those products based on my specific advice recommending they not lock into a Fixed rate…. That’s called being in the right product at the right time. My average client saved $6,000 during that time.
Today, Fixed rates have our attention due to the rates being at all-time record lows. So once again, I’m seeing consumers flock to the the internet to see who’s got the ‘Best Rate’. Hey, the strategy hasn’t changed… We still want to be in the right product at the right time… But the products have become more complicated.. and we are seeing some poor product recommendations.. It’s time put these sites to the test… After 2 months of research, here’s the results followed by some recommendations…..
SOME QUESTIONS AND ANSWERS
- How do these sites work? These sites advertise all over the internet using adwords and other SEO forms of paid advertising. Consumers click their ads and get directed to their sites….the consumer then notices the ‘so-called’ lowest broker rate for various terms. If you want more info, just send your contact info and that broker will call you.
- Do these sites really compare all mortgage broker rates? NO, not even close! This is the part that surprised me! After a month of reviewing the sites daily and checking to see which brokers were promoted, we could only find 4 different brokers on one site and 6 on another. That’s it! That got me even more curious… Considering there are over 15,000 brokers in Canada… 15,000!!… and only 4 to 6 brokers are being advertised? That doesn’t sound like a rate comparison site.
- Are new brokers being added and compared? Here again, I was extremely surprised and disappointed… I inquired about signing on as a participating broker… only to be told the territories I was interested in were all full… By the way, I inquired about several locations… they were all ‘full’. So if I, or any other broker, had a great product to promote, we can’t. These sites only allow a very small number of PAYING broker access in each Province. That’s right…PAYING brokers. Bet you didn’t know that? (more details on this later). This explains why the same brokers keep popping up day after day, week after week… It’s almost like they were selling franchises?? This was starting to sound less of rate shopping sites and more like a businesses with limited partners.
- What’s it cost to get on these sites..? Well, assuming you were a broker that signed on a few years ago and you did get access to the sites… You must agree to pay a fee for each and every lead or inquiry. Cost varies from site to site but it’s around $50 to $70 per lead.. A lead is anyone that filled out that ‘contact info section’ looking for more info on the advertised rate.
- But are these rates legit? Yes and no. Yes, the rates are available for qualified applicants that fit very specific circumstances…. Does that make them legit? Well, technically, yes, but just barely in my mind…. Is it a bait and switch? In some cases, probably.. but I’m not sure how widespread this is yet… I’ll be watching.. but I have my suspicions.
- Who are these products really for? Some products are only for hi-ratio mortgages (less than 20% down payment.. that’s right you must have LESS than 20% down)…some are for quick closings…30, 45 or 60 days…some have limited prepayment privileges or exit options or no exit options… some aren’t available for mortgage transfers or switches or refinances….And then we get into product features that can and do cost you big money…..some have inflated penalty calculations (that can work out to $10k, $15k $20k, $30k or higher) with inflated discharge statement fees ($350, $500 or higher) or the new reinvestment fee as high as $1,000 and more… let’s continue.. most ‘best rate quotes’ weren’t available for rentals, some products aren’t available for preapprovals, just real purchases, etc, etc… The list goes on and on….
- Would I recommend these products? No. I don’t and I never will. Too many restrictions and limitations. Too much buried in the fine print. A $300k mortgage with a 0.10% rate difference saves you $15/mth. But the exit costs down the road, will FAR EXCEED any savings.. Stick to the AAA products in the market.. A broker can get you a great rate today… Rates as good but usually better than your Bank but with BETTER terms and conditions…You’ll thank me later or you’ll wish you had listened to my warnings.
- Don’t forget the spam emails… Almost forgot this one… You can expect an endless trail of spam marketing emails… I counted 16 emails in 30 days offering various other products and services… it really did become quite annoying… Yes, you can unsubscribe, but if you’re like most people that read emails on their phones, it’s not so easy to unsubscribe… so they keep coming over and over again…
Two sayings come to mind… ‘if it sounds too good to be true, it probably is.” and “you get what you pay for”.
Can a site be impartial and claim to shop Canada’s brokers when they only allow a limited number of brokers access and will only quote broker’s rates that agree to pay a fee for leads generated? I’ll let you answer that question…
As you can tell, I have a problem with these rate-quote sites… Mortgage Brokers represent a large number of competing Lenders… My firm now deals with 50. That means when a client comes to me, they have immediate access to 50 Lenders… That’s what I call shopping… But now we have these new sites that give the perception they are just there to compare rates, but in reality they are making a hefty income from comparing a small number of PAYING brokers… Dealing with more than one broker at a time is redundant and adds no value. Remember, a broker already does the shopping… These sites don’t offer anything new or extra.
My advice to anyone that is dealing with a broker is this… stick with your broker.. if they ever stop satisfying your needs or can’t answer your questions, then move one.. But there is no reason to have more than one broker working on your application at one time… I for one, will not take on a client that is currently dealing with another broker… A challenge to all brokers… raise the bar… raise the standards… raise your ethics…
The difference is in our advice… Just like 80% of my clients that enjoyed a 1.35% rate in 2009 and 2010, they benefited from my advice and recommendations. This hasn’t changed. Listen to an experienced broker that is willing and able to provide you with a personalized strategy. This is when you will truly save on your mortgage and pay the least to own your home.
HOW ABOUT A GREAT RATE AND THE BEST MORTGAGE.
Hey, we all want the best rate.. well actually, we want to pay the least amount of money to own our homes…Choosing a mortgage based on rate alone, is dangerous. There’s more to a mortgage than just rate… I’ve shared dozens of examples on this site where borrowers were caught off-guard with inflated penalties or high exit fees or restrictions that didn’t allow them to leave… I have dozens of emails from my readers asking for help… sometimes I can help… but in most cases, the mortgage contracts are ironclad.
They say you should avoid making forecasts… Well, I’m gonna make one anyway… I’m gonna go on record and say that since BMO announced their NO FRILLS mortgage last year, and with several other Lenders following in their footsteps, I think we’ll be reading about numerous borrowers that got caught with inflated mortgage penalties, or the inability to exit their mortgages during a time of need… all because they took the so-called ‘best rate’… and not the ‘best mortgage’.
Please make sure you don’t get directed into an inferior mortgage….. if you’re not sure, call me for verification. I’ll be going over some more of these product differences in a future report.