August 15, 2012
According to Moolala author Bruce Sellery, going back to your bank for a mortgage, primarily because you’ve been a customer “forever,” is “zombie behaviour.”
Sellery made the comments during a Lang & O’Leary Exchange appearance Monday.
“A lot of people would say it’s loyalty. I would say it’s lazy,” he adds.
Sellery offered up this guidance on picking your next mortgage originator (our comments in italics):
- “You can be loyal to a restaurant you love because they treat you right, but don’t be loyal to your bank because you like the person there…It can make a profound difference in the rate you pay.” (Here’s some research that bears that out. This could apply to brokers as well.)
- “Don’t let loyalty trump the interest rate.”
“[Mortgage brokers] work for you, versus the bank mortgage specialist who works for the bank and offers the products of the bank.” (There are plenty of highly capable and competitive bank specialists out there, but like truly top-notch brokers, it takes effort to find them. One challenge invariably remains: Lender reps rarely highlight their product’s negatives vis a vis the competition, because they generally have to push one brand [their brand] to make a living.)
- “[Banks] can be competitive. They have deep pockets. But they are competitive when they have to be competitive.” (Ummm. Yep. Banks’ discretionary pricing models rely on inferior negotiators propping up their margins. That said, banks have become noticeably more competitive in recent years.)
- Understand how brokers make money, he advises. Here’s one of his articles on this topic. Most brokers make a one-time commission based on the value of the mortgage. They can also receive volume bonuses, trailer fees, and incentives.
- “The volume bonuses are…the area where I have the biggest question,” Sellery says. He cites a potential “loss of objectivity” resulting from some brokers thinking: “If I hit my volume, I get X.” (He’s right, and it’s one thing our industry takes heat for. Volume incentives often do affect objectivity. Albeit, they also help high-volume brokerages offer better rates to clients. Regulators require incentives to be disclosed to borrowers in most provinces, but that doesn’t always curb undesirable related practices.)
- You can sometimes benefit from keeping all of your business with a bank but you will have to “fight for” that benefit, says Sellery.
Here’s the full video. If you want to see the above interview, fast forward to 28:10.
Images of the Lang & O’Leary Exchange belong to CBC.