Broker: Conversion clients winning extended rate holds
By
Vernon Clement Jones
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15/05/2011 8:00:00 PM
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It was once the impossible dream, say brokers. But some lenders are now holding a fixed rate for as long as 7, 30 or, even, 90 days, buying existing clients the time to decide whether to convert their variable mortgages.
“It’s really just a discretionary policy unwritten by most lenders,” Mike Averbach, TMG The Mortgage Group Averbach Mortgages, told MortgageBrokerNews.ca, “but what we’re finding with some clients unsure about converting their ARMs to fixed-rate mortgages is that by encouraging them to ask their lenders for holds, they are getting them for as long as 30 days, and in some cases, 90. It’s worth telling clients to try, and then if that doesn’t yield good results, as brokers we can look at reserving a rate through another lender for as long as 120 days. Either way it’s giving a client the time to decide whether they need to convert at this time.”
Traditionally – albeit unofficially – banks and mono-line lenders have capped holds at a maximum of three days to allow clients time to weigh their options before converting and locking in. In Averbach’s highly competitive Vancouver market, a few lenders, most notably credit unions, are now prepared to extend that grace period on a case-by-case basis, he said. He points to a large credit union and a lender serving the broker channel as recent examples.
Ostensibly, their lenience is meant to help them better retain clients, who are increasingly prepared to take a penalty in order to secure a better rate with another lender.
The changes come as a growing number of Canadians move to lock in on a fixed rate in anticipation of the Central Bank’s move to raise its overnight rate as early as July.
According to CAAMP’s spring report, among the 3.6 million Canadian homeowners with fixed rate mortgages, 15 per cent locked in during the past 12 months. That's up from the 12 per cent who locked in the previous year. A recent decision by the banks and other lenders to raise their fixed rates have also created an incentive to convert or at least attempt to reserve a fixed rate.
Staying with the existing lender is usually the best option for most of those borrowers, said Averbach, pointing to costs and convenience. Brokers haven’t traditionally benefited financially from that choice, something that industry players acknowledge has limited the willingness of some mortgage professionals to take on that advisory role.
That’s a shortsighted approach, said Abraham Niyazi, a broker with Centum One Financial in Richmond Hill. While there may be no compensation when a client converts with an existing lender, mortgage professionals taking the time to walk clients through their options usually increase their referral stream.
“It’s all about the client,” he told MortgageBrokerNews.ca., “and if the client thinks that for one moment you’re not there for their best interests, you’ve lost them and their referrals.”
Still, helping clients win an extended rate hold with their current lender can accrue to the benefit of brokers compensated under the trailer fee model when a new five-year term is tabbed on. But even without that incentive, brokers advancing their customer service reputation, beyond originations and renewal dates, helps to better position them as country's mortgage experts.
“I think it is important that the client always call to find out their options -- call their broker first for strategic advice and then the lender directly, if necessary, once we have educated them on what they should be offered,” Justin Blacklock, the mortgage manager at Averbach Mortgages, told MortgageBrokerNews.ca. "While it is true that the lenders never want to give a rate hold on a VRM conversion, they do in some cases. To be specific, different lenders will allow the client varying lengths of time to accept the offer. One lender might insist on an answer within 3 days while another may allow 30 days. We have seen both."