Mortgage Broker vs.Your Bank: The Smart Choice
Posted by / / No responsesMortgage Broker vs Your Bank: The Smart Choice
When we advise our clients about mortgages we advise them to go see our mortgage broker before committing to a mortgage with their own bank we initially get some skepticism. “But we’ve been with our bank for years! So they will give us a better rate”, is the answer we commonly receive. But this is a common misconception perpetrated by—the banks of course. Here are the facts about banking that you need to know before deciding on a new mortgge or mortgage refinancing…
At a Bank–Are you a Client or a Customer? Did you know that you are the source of the banks revenue and that the real client to the bank is a person who has stocks and shares with the bank? This means the job of the bank is to get more people to take out loans, use their credit cards and invest their money in term deposits. When they do this the bank makes more revenue to pay dividends to their shareholders—who are the real clients of the bank. YOU are a paying customer. So—does their business (aka revenue generation) come from giving you the lowest or the highest rate? Increasing revenues through mortgages and other interest-driven loans (car, credit card, etc.) is their number one goal. And their number one source of revenue? Existing clients who sign a new mortgage without comparing (through other banks or mortgage brokers) AND existing mortgage holders who sign the automatically sign the renewal that comes in the mail.
Did you know? A stranger to a bank can walk into your branch or your bank and get a pre-approved mortgage with a guaranteed interest rate for usually 90 days and IF the rate goes lower prior to closing they get the lower rate no questions asked. If the rate goes higher before they buy a home the rate will not go up because the bank gave the a guaranteed rate. Now YOU on the other hand, will not receive the same service. 90 days prior to your mortgage coming up for renewal you can NOT lock in an interest rate and the bank will give you a rate just before the mortgage is due to renew. If the rates are fluctuating you might lose a good rate.
WHY does this happen? Banks know that people tend to be lazy and hate dealing with banks, paperwork and credit checks—so they send you mortgage renewal paperwork and you sign it. Then you have a mortgage for another 5 years, and you’re likely using their other fee-based services. BUT, a new person off the street gets a better rate because the bank wants to earn that new business—so they can then sell them more services that help to bring in more revenue for their Clients (the Share Holders).
WHAT happens if you shop around? One way to shop around—and in our opinion the most money-efficient way—is to contact a well-known, and highly-recommended Mortgage Broker. This is easy for you as you only fill out one application, but they combine your application with tens or hundreds of others to find you the best group rate. DON’T however shop around filling out multiple mortgage applications as this can negatively affect your credit as it appears as though you are applying for multiple sources of credit from multiple sources—which negatively impacts your credit, lowering your overall Beacon Score.
WHY THE WILDING TEAM recommends OUR Mortgage Planner? An experienced mortgage planner (not all mortgage brokers function as true mortgage planners) looks over your financial situation and where you are in your life at this time, then talks about your plans are for the future. There are a number of scenarios that affect your mortgage. Some examples of life situations that impact on your mortgage plans include:
1. New/Impending Family
You are a young couple planning a family in a few years. But, you need to consider that your income might be less if one parent stays home, OR, your expenses might be higher if you need a babysitter or day care. So, buying at the right price range is crucial—and it might be lower than your credit allows. You may want to make lump sum payments before you have a family to help reduce your mortgage balance—which will alter your mortgage. This however will be faster while/if you have TWO salaries. There are many things that an experienced mortgage broker should keep in mind.
2. Current Unaccounted-for Expenses You are a couple with 3 teenagers who, in a few years, will be going off to college or university—so capabilities in paying off a mortgage fast will dwindle, in fact there may be times where paying for education and your mortgage becomes difficult. While a Mortgage Planner does not sell Education Funds they can show you how this might help you for the future.
3. Downsizing You might be seniors who are thinking about moving to a smaller home and don’t know where and when to move, but your mortgage is up for renewal—should you have an open mortgage OR maybe you want to use some of the equity in your home to help your children buy a home. Or perhaps you would like to help your children to have a conventional mortgage with no CMHC fees so they too can pay off their mortgage faster. OR perhaps you might want to fix up the house to sell it in order to make more money once sold.
4. Unknown Savings A mortgage planner only deals in mortgages and they watch the market for their clients (and their clients are you, the person with a mortgage) because they will call you when they know that rates are going up, as they know that you have a year left to your 5-year mortgage. They will let you know that it may be to your benefit to cancel your present mortgage, pay a small penalty and then get the lower rate. This would be better than waiting another year until your mortgage matures, where you would possibly pay a much higher interest rate. They benefit because they profit off your renewal and you benefit because you save money over the longer term.
OUR Mortgage Planner is looking out for YOUR interests. Before you buy, after you have bought, years into your mortgage and when you are ready to renew they work WITH YOU to get the best mortgage that helps you have a great future.
OUR Mortgage Planner can get you a better rate. Many times a Broker can get a better rate for you because they deal with many clients at the same time who are looking to get a mortgage. As an example, they might have 20 mortgages to place and they ask the banks and trust companies their rates, and because the banks do not want to miss out on getting 20 NEW mortgages. This then gives them opportunity to sell products to 20 NEW customers, products including term deposits, lines of credits, savings accounts, loans for cars and credit cards. The bank then gives the Mortgage Planner a better rate for all 20 mortgages and that benefits you. Better rates through collective bargaining power.
DOES it cost me to use a Mortgage Planner? Years ago Mortgage Brokers were used to help people with bad credit a loan or mortgage and they charged you for the service but now it is free. The Mortgage Planner is paid by the bank that they place the mortgage with. Why does the bank pay them? It is cheaper to pay a fee to a Mortgage Planner/Broker than it is to have a bank employee sit at a desk and wait for customers to come to them—plus they have to pay that employee a salary and health benefits which is expensive on the part of the bank. It is much easier to give a lower interest rate to Mortgage Brokers to bring them lots of mortgages, and new business to the bank.
NEVER keep all your banking in one bank? In financial planning it is always better to diversify and that is true with your banking. WE strongly suggest that you keep your mortgage at one bank, your savings and credit card at another, your term deposits and investments somewhere else—so that when the time comes for you to apply for a loan, mortgage, or line of credit the bank will be willing to work with you should you mention that you are considering bringing your other accounts to them as well.
YOU HAVE TO LOOK OUT FOR YOURSELF and YOUR FINANCIAL SITUATION….that is the truth!
Before entering the real estate field both of us, Debbie and Alison Wilding, worked for major banks—with experience over 20 years. The knowledge we gained there helps us advise our clients about smart home financing, one of the many perks of working with The Wilding Team.
http://www.donstoddart.com