The major advantage for brokers following rate cuts?

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Brokers have reported an increase in inquiries from clients since the Bank of Canada rate change, which has provided an opportunity for industry players to extoll the benefits of working with a mortgage broker – and explain the fine print on mortgage documents that many bankers may overlook.

“It’s great time because you get that opportunity to have the conversation about pre-payment penalties – how they work,” Dustan Woodhouse, a BC-based broker with Dominion Lending Centres told “And they often say their bank never explained it to them and how cool is it to have that conversation? You’re telling them something their banker never told them when they signed up for a mortgage.”

Clients are increasingly more educated about the state of mortgage rates and the various offerings from the big banks and brokers. What they may require education on is in the area of pre-payment penalties, which opens up the opportunity for brokers.

“The advantage for brokers isn’t rates – we all have access to the same rates and, yeah, we can get prime minus 70 from a monoline but so what?” Woodhouse said. “The bank rep can access prime minus 70 from any of the major chartered banks, so it’s never about rates, even though it’s always about rates in that initial first sixty seconds of conversation with the client. You’ve got to redirect the conversation to policies, guidelines, pre-payment privileges, pre-payment penalties.”

But rate-focused clients may not be swayed. However, brokers are well equipped to compete with the banks, according to Woodhouse. Especially after the initial client consultation about how penalties work.

“For clients looking at a five-year fixed, unquestionably is a monoline lender nine times out of 10. Not for every single client, but for the overwhelming majority of clients, if they want a five-year fixed they will have a significantly better advantage in pre-payment penalties by going with monolines,” Woodhouse said. “Six out of 10 Canadians are breaking their mortgages early. 10 out of 10 Canadians say ‘that won’t be me.’”

  • John Greenlee on 2015-02-05 12:01:23 PM

    I agree fully with the article.

    Whenever this conversation is had with a client I find the majority understand.

    To take it even further, you can prove your point using the penalty pre-payment calculators that the banks provide online. This works on those tougher to crack clients.

  • George on 2015-02-05 12:04:05 PM

    My experience is that the big banks are far superior to the monolines when it comes to porting the mortgage. Try getting a bridge loan with some monolines and their silly restrictions. Their porting restrictions are there to force the client to break the mortgage. The big banks give you up to 6 months in some cases to port. Good luck getting this with monolines. Further, some of the big banks allow for multiple tiers within a mortgage so that the client does not need to blend and extend like the monolines require you to do. At the end of the day, the big six are not as bad as brokers make them out to be.

  • John Greenlee on 2015-02-05 12:05:14 PM

    I should further qualify my statement to include the fact that sometimes a deal is just simply a bank deal and I do certainly value or bank partners.

    So you do have to be careful. If you get into the deal and find out it is a bank deal hopefully you have already prepared the client for the fact that their deal could still end up being a bank deal and what to expect on that front.

  • Dustan Woodhouse on 2015-02-05 3:10:47 PM

    Thanks for the comments, this story was based on a 5-10 minute chat with Mr Da Rosa. Decisions made with regard to a clients file based on what is typically a 45 minute opening conversation and are case-by-case, never simplified with a blanket statement of any kind. Understanding lender policies and how they might apply to our clients is a key point. A TD variable might suit a client well with the ability to lock into a 3yr fixed in the first year being a unique feature along with the ability to recover the (vrm) prepayment penalty up to 12 months past a sale date. Just as a radically lower fixed penalty calculation at a monoline might appeal to a client looking at the possibility of flipping an investment property around the 4yr mark.

    Horses for courses!

  • Ron Butler on 2015-02-05 4:40:10 PM

    Dustan's depth of knowledge on the minutia of mortgage products constantly amazes me. He digs deep to provide a huge degree of information and advice to his clients. Hat's off to him. We can agree to disagree about the idea that all brokers have the same rates, or that all brokers offer the same rates.

  • Dustan Woodhouse on 2015-02-05 5:29:00 PM

    Ha, thanks for the kind words Ron. That means an awful lot coming from you. Speaking of 'blanket statements' yes I was making one of my own there. There are often inefficiencies in the market that allow us to beat, or be beat, by 0.05 or 0.10 in a specific lender vs. lender case. But that would take a 300 word piece and turn it into a multi-faceted 1200 word piece to elaborate on. Anybody can choose to go to work today for free, and maybe tomorrow too, but working for free is not sustainable for long.

    The world of Mortgage Finance has so many layers to it, it is fascinating to delve into for a geek like me.


  • Ron Butler on 2015-02-05 5:43:37 PM

    We have been discounting every rate on every term for the last two years. Not based on "market inefficiencies" but actually based on reaching in our pockets and reducing commissions on every "A" mortgage, passing the savings on to the consumer and paying for appraisals for the vast majority of clients. We work for less, not for free and we have built a company around doing that. So when I hear "all brokers have access the same rates" I tend to react. Sorry, bit off topic. Please keep hammering away on vile, high penalty products

  • Dustan Woodhouse on 2015-02-05 6:52:15 PM

    Yep, like I mentioned 'a 1200 word multi-faceted topic'. I was speaking to one extreme, not to your model, which is not that different from my own. Take care Ron.

  • Brad Lockey, DLC Family Group Mortgages on 2015-02-19 3:18:22 PM

    So extremely true:

    “Six out of 10 Canadians are breaking their mortgages early. 10 out of 10 Canadians say ‘that won’t be me.’”

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