Brokers turn to buydowns in slow market

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One broker is getting candid about rate buy downs, offering 2.89 per cent on five-year fixed to any client who qualifies and arguing a slowing market has mandated the move.

“Buying down rates is not for everyone,” said Darin Bauer, a broker with Mortgage Intelligence in Toronto. “But I have several lenders who are offering really attractively low rates and December is a very slow month so I believe bought-down rates will bring more business through the door.”

A check with Bauer`s website TorontoMortgageSite.com indicates that he is offering a five-year fixed mortgage a 2.89 per cent. The offer is available for a home purchase, mortgage refinance or renewal. The rate, which can be held for up to 120 days, is ideal for home buyers who have a purchase coming within the next three months, said Bauer.

The seasonal winter slowdown has been exacerbated by recent mortgage rules changes laid down by the government . They’ve cut off many first-time buyers from the housing market and taken the steam off refi deals.

While it is a common strategy, some mortgage brokers hold a dim view of buying down rates arguing the practice destroys a broker’s credibility by putting the focus on rate and away from the true value of a mortgage professional’s independent advice.

“If you’re a single, independent mortgage broker trying to buy down rate in order to keep a client from going over to a bank offering a better rate, you are competing with the bank,” Ad Lakhanpal, with Mortgage Alliance in Oakville, Ont, told MortgageBrokerNews.ca in an earlier interview. “You are not going to win that competition.”

However, Bauer believes the time is now for buydowns because some lenders have already lowered their rates to a very attractive level.

“I have a lender who is already offering 2.99 per cent and another offering 2.94 per cent on five-year fixed mortgages,” he said. “So the buy down is not that huge, plus I still earn some revenue from points programs.”

He also said another lender is offering 2.89 per cent for high-ratio, insured five-year mortgages.

 

 

  • James Shinners on 05/12/2012 6:08:04 AM

    If all you've got is rate, get out of our industry! None of us can afford to stay in business if we're only getting paid 30 bps on these discounted rates. Let's not shoot ourselves in the foot by telling lenders that we're happy to get paid 30bps on these discounted 5-year deals. By focussing on great before and after service over the last 8 years I have risen above any objection on rate. Brokerages need to do a better job training their brokers.

  • Anon broker on 05/12/2012 6:28:04 AM

    Seriously, buying down every rate just makes the broker look desperate, and not focused on the client's true needs. If you don't feel you are worth it, then go ahead and work for nothing.

  • Kenzie MacDermid on 05/12/2012 6:49:19 AM

    Foolish, inexperienced agents who are cutting their own throats. Where is the service and proffessiolism. Sound no different than an O'leary mortgage to me. Cant wait for the next cull of mortgage agents in the next few years.

  • Vince Gaetano on 05/12/2012 7:15:42 AM

    In most cases, consumers do appreciate value if you are providing service, advice and professionalism which they seek. Focusing on these type of clients makes this issue a moot point. Good luck to brokers who need to buy down every deal.

  • Paolo Di Petta | dipettamortgage.com on 05/12/2012 7:38:57 AM

    I'm not worried about people who do buydowns. Eventually their margins will get so thin that they'll just push themselves out of the industry - when their only value proposition is rate, the banks (with their infinitely bigger ad budgets and lax regulations) will close in on them sooner or later.

    The market has been shifting dramatically lately, and buydowns are their last ditch effort.

    Smart agents and brokers go beyond minor rate buydowns and offer real value to their customers. That's the only way to maintain a sustainable business. We have the expertise, and build the relationships that provide more than an extra 10bps ever could.

  • David Skinner on 06/12/2012 4:33:21 AM

    Couldn't agree more with previous comments. Brokers are giving away the shop by using rate buy-downs, & we are definitely selling ourselves short by doing this. Doesn't our service & professionalism count for anything?

  • Tom Venner on 06/12/2012 4:53:36 AM

    Just had a client that I offered 3.09, went to bank for renewal papers and they were offered 2.89. Should I have told them "my service is better so take the 3.09"? I compromised and got them 2.99 and will get 60 bps. What's wrong with that.

  • a customer on 06/12/2012 7:36:07 AM

    I'm a customer, and man, it's a rough world, but why would I pay a higher mortgage rate for 5 whole years (or 3, or 2), when the guy down the street will give me 2.89%? It's a commission model in a sales industry--price counts whether you guys believe it or not. Ask Wal-mart and Home Depot. You're essentially proposing a price-fixing scheme in a capitalist financial market.

  • Joe the broker on 06/12/2012 12:38:08 PM

    To "Tom Venner" and "a customer". You are both absolutely correct. Many people nowadays know enough about a mortgage that they are not interested in paying a higher rate for "advice". There is nothing wrong with buying down a rate to make a deal happen. Especially when bank branches are continually offering their own discounted rates to retain business. The brokers who lose a deal because they want full commission on every deal are just plain greedy. They think their value proposition will work with everyone but in reality it doesn't.

    To each their own, but buying down rates is not a sin, it's just part of getting a deal done for certain clients.

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