The downside to advertising rock-bottom rates

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With advertisements for 1.99% rates seemingly everywhere, brokers are finding themselves in the position of having to manage expectations and bring mortgage loan seekers back to earth.

“Consumer expectations can be unrealistic, because their value as a borrower isn’t always 2.64%,” says Andrea Haines, regional manager, Eastern Ontario, Magenta Mortgage, citing the examples of clients with poor credit who come looking for A-class credit ratings. “They might be a 4.99% client for a short while, but not 2.64%; and certainly not 1.99%.”

What exacerbates the problem are advertising campaigns that promote incredibly low mortgage rates that simply aren’t within the reach of some clients.

Haines told MBN that when brokers advertise rates on the radio for as low as 1.99%, consumers expect to be approved for that rate.

“Then they talk to a broker and hear they can only be approved for 5.49%, and they think the broker they are dealing with must be incompetent,” she says. “They hear that advertised rate, but they may not get it, and think it is the broker’s fault somehow.”

It is then that the client switches from one broker to another, and the lender then receives the same application for the same borrowers – only to return the same 5.49% rate.

“They get the same answer back, and sudden broker ‘A’ looks pretty good,” says Haines.

Unfortunately, many consumers are mired in debt and still are trying to keep up with the Joneses, she says, and in the process take themselves out of the running for that 1.99% rate. Changes with income and other qualifying factors on the A lending side are also not always understood or anticipated by consumers.

“I don’t think people are saving,” says Haines. “Everyone has different priorities, and it isn’t always to the benefit of a lower mortgage rate.”

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