Inexperienced agents will likely move to buy down their rates on a five-year fixed in order to compete with BMO’s well-publicized special, says one industry veteran, cautioning them against that move.
“It’s inevitable, but it’s a mistake,” said George Hugh, president of Taurus Mortgage Capital and former head of broker services for ING. “What they need to do is educate the consumer on the limitations of that BMO mortgage and keep their rates and explain to the client that extra value.”
Hugh is among those anticipating a bump-up in the rate wars resulting from BMO’s move earlier this month to introduce a 2.99 per cent interest rate on a closed five-year fixed. He’s also one of the many drawing attention to some of its restrictions – its 10 per cent annual limit on prepayments and its 25-year cap on amortization, to name just two.
Still, the rate itself garnered headlines across the country last week, with brokers fielding queries about a mortgage simply unavailable to the channel.
It’s that publicity that may lead agents to buy down their rates to match that offer, expiring Jan. 25. Still, other brokers are expecting to channel clients into the four-year 2.99 rate channel lender TD is now offering, rather than agree to cut their own compensation in order to match BMO’s five-year special.
But, if pressed, many agents without the know-how to re-direct clients away from the BMO no-frills mortgage will likely move to that buy-down option, says Hugh. He, like most industry veterans, won’t be one of them.
“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, and you are not going to win that competition,” Ad Lakhanpal, with Mortgage Alliance in Oakville, Ont., tells MortgageBrokerNews.ca. “I’ve had agents agree to do it, and then they’ve gone back to the lender to get a new commitment letter to present to the client. But the process doesn’t end there: the client then goes back to the bank again, and they better that new rate. So they’ve still lost the client. I’ve never bought down rate and I never advise it.”
Fewer and fewer brokers and agents across Canada are prepared to say the same, as competition with the bank heats up and originations slow down. Some mortgage professionals are, in fact, suggesting as many as 80 per cent to 90 per cent of brokers are now prepared to sacrifice a portion of their commission in order to shave even five basis points off of a client’s interest rate.
Once dismissed as a last-ditch effort to retain customers, a growing number of brokerages are using it as a first line of defence as they ramp up online lead generation efforts, dangling rock-bottom rates on the Web to attract shoppers.