Are lenders’ promotional rates eating into broker bottom lines?

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CIBC has followed Meridian’s lead and offered a nine-month promotional rate to mortgage clients, and brokers may feel the pinch to buy-down rate.

“They are a lot of smoke and mirrors; I’d prefer a much more even market but the way I look at it, on our broker side, unfortunately, it’s a race to zero,” Jivan Sanghera of Dominion Lending Centres Home Capital Solutions told MortgageBrokerNews.ca. “Everyone is cutting commissions as a result to stay competitive.”

CIBC currently offers an introductory 1.99 per cent interest rate for the first nine months that changes to 2.83 per cent for the rest of the four year fixed-rate mortgage’s term.

Many brokers refuse to buy rates down to win deals, but the reality is that an increasing number feel they have to, at least in certain cases.

“More than anything I’m frustrated by teaser rates being offered by big banks and other lenders; these teaser rates are making their way back into the market,” Sanghera said. “These rates are all optics. Consumers are taking those products that aren’t available to the entire market.”

According to Denny Segal of of Dominion Lending Centres Origin, brokers generally have to take a 20 basis point commission hit to buy down a rate by 5 basis points.

He refuses to buy rates down. He does have relationships with lenders who will negotiation, though.

“Depending on the lenders and the volumes you do with them, there sometimes is the option of negotiating a better rate [that doesn’t affect commissions],” Segal said. “They would typically allow you to buy down 5 basis points.”

Meridian Credit Union, the largest CU in Ontario, offered an 18 month fixed-rate mortgage at 1.49 per cent in April, stoking the fire of an already heated rate war. It was the lowest posted mortgage rate in Canadian history.

However, brokers have found success in discouraging clients from taking on these promotional rates by outlining the overall cost for the entirety of the mortgage term.
 
  • Ron Butler on 2015-05-06 9:53:58 AM

    So funny, brokers refuse to buy down rates. What is it? Pride? Arrogance? Realtors negotiate commissions every day, why cannot mortgage brokers offer a better deal to consumers?

  • John W on 2015-05-06 10:25:05 AM

    I find that when the spring market comes and banks are advertising more with promo's the market heats up and we get more business. To have to give up 20 basis points on a few deals is no big deal. Usually the brokers complaining about this are the ones that don't do many deals so it has more of an impact on their bottom line. I was amazed to see someone post on here last month that half of all mortgage brokers make less than $50,000. They would have a totally different perspective than someone who is making say $250,000.

  • Kris G on 2015-05-06 11:02:20 AM

    A 3 yr promo rate would likely beat this still.
    Let the math do the talking to clients.

    Our rates are usually quite competitive, so I do not find myself needing to buydown often. Further, if you work out the overall term savings on 5bps to the client, include future legal fees if competition is Collateral Charge and the difficulty switching in future. If that doesn't cut it, then you could offer them the same value/savings upfront via legal fees/appraisal rebate(s) then you do not have to erode your comp with a severe buydown.
    5bps = 20 comp reduction in most cases. The cheque you write to a law office is usually much less!

    I would much rather get the business. Don't advertise to them that you bought it down. You may lose a little on one, but I would much rather be the one servicing the client and setting myself up for referrals and growth!

  • Ron Butler on 2015-05-06 11:12:26 AM

    Here's the part that brokers miss: the banks are paying for appraisals on every single purchase and 65% of the refinances, 65% of the time the banks are picking up the legal fees on refinances. To be truly competitive with banks you need to pay for all those fees and have very low discounted rates. I know many brokers will say: that's crazy, I have never done that and that is fine but as information about mortgage procedures becomes more and more available to the public I think we will all need to dig deeper and compete more aggressively to gain our rightful share of the business.

  • Elizabeth Biderman on 2015-05-06 12:32:27 PM

    Buying down rates and pitching in by paying for various costs is like opening a Pandora's box - It's a never ending race to the bottom... both real estate and mortgage industry are facing the same future. It is happening before our eyes and the once pretty lucrative businesses will become nothing more than just regular jobs -putting bread on the table type ...do we want that?
    I guess it is a force of the market. There is just too many of us fighting for the same piece of pie. We see a real estate agent and mortgage broker at every corner...

  • Ron Butler on 2015-05-06 12:36:47 PM

    Elizabeth, what you are saying is reasonable, it is a normal reaction to a changing marketplace but just consider this: it is never about what we as mortgage brokers want; it is only about what the consumer wants.

  • Victor Simone on 2015-05-06 1:24:57 PM

    Sure, the rate buydowns cut into revenues for the brokerages and all sales persons.

    Time will tell how much revenue cuts your brokerage will continue to allow without rules or limits for buydowns.

    If you want to have a limit for your own business, that your brokerage can live with ? Win-win.

    Just being able to pick your spots for buy-downs, so you can complete, will help your mortgage business. You don't have to give it all away, just be smart about it.

  • Victor Simone on 2015-05-06 1:25:24 PM

    Sure, the rate buydowns cut into revenues for the brokerages and all sales persons.

    Time will tell how much revenue cuts your brokerage will continue to allow without rules or limits for buydowns.

    If you want to have a limit for your own business, that your brokerage can live with ? Win-win.

    Just being able to pick your spots for buy-downs, so you can complete, will help your mortgage business. You don't have to give it all away, just be smart about it.

  • Broker on 2015-05-06 2:39:42 PM

    Don't worry about racing to the bottom. We're going to hit the bottom whether you like it or not. Run or walk. It's your choice.

  • newb on 2015-05-06 2:42:20 PM

    Don't worry about racing to the bottom. We're going to hit the bottom whether you like it or not. Run or walk. It's your choice.

  • newb on 2015-05-06 2:44:40 PM

    CMP. Your comment system is F'd up. It is double posting.

  • John W on 2015-05-06 2:48:16 PM

    @Broker. A little too pessimistic for me. There is so much opportunity in this business and some view any little challenge as the end of the world. It's not difficult to compete with anyone out there.

  • Elizabeth Biderman on 2015-05-06 4:01:53 PM

    Ron, Consumers want everything for nothing - that's just it. That is the way human beings are. In order to prevail in business we have to strive to protect our bottom line. If we give and give we'd be closing doors in no time. Like everywhere there has to be a balance ....but how to implement that balance is quite another story...

  • Top Mortgage Broker on 2015-05-06 4:54:41 PM

    I love when my competition does not discount. I eat their lunch everyday while on my boat!

  • Ron Butler on 2015-05-06 4:56:38 PM

    Sooner or later a "sipping a drink on my yacht" comment while peons make mistakes always shows up.

  • Elizabeth Biderman on 2015-05-06 5:10:09 PM

    Say that again...:)

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