Are lenders’ promotional rates eating into broker bottom lines?

Are lenders’ promotional rates eating into broker bottom lines?

Are lenders’ promotional rates eating into broker bottom lines? CIBC has followed Meridian’s lead and offered a nine-month promotional rate to mortgage clients, and brokers may feel the pinch to buy-down rate.

“They are a lot of smoke and mirrors; I’d prefer a much more even market but the way I look at it, on our broker side, unfortunately, it’s a race to zero,” Jivan Sanghera of Dominion Lending Centres Home Capital Solutions told “Everyone is cutting commissions as a result to stay competitive.”

CIBC currently offers an introductory 1.99 per cent interest rate for the first nine months that changes to 2.83 per cent for the rest of the four year fixed-rate mortgage’s term.

Many brokers refuse to buy rates down to win deals, but the reality is that an increasing number feel they have to, at least in certain cases.

“More than anything I’m frustrated by teaser rates being offered by big banks and other lenders; these teaser rates are making their way back into the market,” Sanghera said. “These rates are all optics. Consumers are taking those products that aren’t available to the entire market.”

According to Denny Segal of of Dominion Lending Centres Origin, brokers generally have to take a 20 basis point commission hit to buy down a rate by 5 basis points.

He refuses to buy rates down. He does have relationships with lenders who will negotiation, though.

“Depending on the lenders and the volumes you do with them, there sometimes is the option of negotiating a better rate [that doesn’t affect commissions],” Segal said. “They would typically allow you to buy down 5 basis points.”

Meridian Credit Union, the largest CU in Ontario, offered an 18 month fixed-rate mortgage at 1.49 per cent in April, stoking the fire of an already heated rate war. It was the lowest posted mortgage rate in Canadian history.

However, brokers have found success in discouraging clients from taking on these promotional rates by outlining the overall cost for the entirety of the mortgage term.
  • Ron Butler 2015-05-06 9:53:58 AM
    So funny, brokers refuse to buy down rates. What is it? Pride? Arrogance? Realtors negotiate commissions every day, why cannot mortgage brokers offer a better deal to consumers?
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  • John W 2015-05-06 10:25:05 AM
    I find that when the spring market comes and banks are advertising more with promo's the market heats up and we get more business. To have to give up 20 basis points on a few deals is no big deal. Usually the brokers complaining about this are the ones that don't do many deals so it has more of an impact on their bottom line. I was amazed to see someone post on here last month that half of all mortgage brokers make less than $50,000. They would have a totally different perspective than someone who is making say $250,000.
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  • Kris G 2015-05-06 11:02:20 AM
    A 3 yr promo rate would likely beat this still.
    Let the math do the talking to clients.

    Our rates are usually quite competitive, so I do not find myself needing to buydown often. Further, if you work out the overall term savings on 5bps to the client, include future legal fees if competition is Collateral Charge and the difficulty switching in future. If that doesn't cut it, then you could offer them the same value/savings upfront via legal fees/appraisal rebate(s) then you do not have to erode your comp with a severe buydown.
    5bps = 20 comp reduction in most cases. The cheque you write to a law office is usually much less!

    I would much rather get the business. Don't advertise to them that you bought it down. You may lose a little on one, but I would much rather be the one servicing the client and setting myself up for referrals and growth!

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