MORE THAN RATE

MORE THAN RATE

Mortgage brokers discuss why the best rate does not always equal the best mortgage – and why expert advice is essential during the biggest financial transaction most people will ever do

BY LISA GORDON

Any mortgage broker will tell you that the first question a borrower usually asks is, “So, what’s the best rate you can get me?”

But when it comes to the biggest financial purchase you’ll ever make, there’s a lot beneath the surface when it comes to choosing the best mortgage. In fact, the best rate does not always equal the best mortgage.

In the past, financing a home purchase involved going down to the local bank and basically taking whatever mortgage they offered. There wasn’t a lot of choice for buyers, who found themselves pigeon-holed into standard, one-size-fits-all mortgages.

“It’s like going to buy a TV and you can only look at Sony models,” said Kristi Knippel (pictured above), a mortgage broker with One St. Mortgage in Saskatoon, Sask. “Or, running shoes. What if you don’t like Nike? You have to have options that fit and are comfortable, and (when it comes to mortgages) that’s what a mortgage broker provides.”

Knippel, who has been working in the financial industry for 28 years, left her role as a big bank adviser because she felt constrained when it came to offering clients the best products.

“I view myself as a holistic adviser and I like to find products to match the client’s lifestyle,” she explained. “As a mortgage broker, I can offer more options. When I deal with a client, the only thing I look at is what is their current situation, and what are their needs today and in the future? I never view myself as a salesperson. I’m there to provide advice. If someone calls in, I give them my best advice even if it means returning to their existing lender.”

While Knippel said she sometimes loses business by referring people back to their current lender, she has no regrets. “I’ve always operated by the idea that if I do good by people, they will do good by me. I tell them they can pay me by recommending me to their friends or family – they can be an advocate for our industry, understanding that without mortgage brokers, quality will diminish.”

When she worked at the bank, she admitted that she had no idea what other lenders were offering. But, as a broker, she knows what’s happening at all the institutions.

“If I don’t, I have contacts and I can find out. Banks don’t know, nor do they care, what others are offering. They are responsible to their shareholders if they don’t perform financially, so they sell their product and no one else’s.”

Knippel considers herself a professional who offers a top quality service to her clients.

“It’s a business like any other business, where you should be compensated if you do a good job. Borrowers don’t pay us, the lenders do, but I can say there is very little difference in the amount of compensation from lender to lender – in fact, I honestly don’t pay attention to the compensation on a particular mortgage, because they are all roughly the same.

“I run my business for myself,” she continued. “I’m not a big bank. I do the best for my clients that I can because I work for them. If I don’t feel I can provide the best, I will help them with next steps and perhaps refer them to a financial institution.”

Marci Deane

Like Knippel, North Vancouver mortgage broker Marci Deane spent a decade working at one of the big banks and has more than 25 years of experience in the finance industry. She’s been a licensed broker since 2007 and launched her own brokerage – Ask Marci About Mortgages – in 2013.

Although Deane has sub-brokers working with her, she is a very active mortgage professional who closes deals every day.

“I have a big book of business and my clients are my priority. When clients do an intro call with me, we talk about how I am an independent adviser and I work the same way as a real estate agent. I get paid when we fund a mortgage. So, my job is to provide the best service with the idea that I will get paid at the end of the transaction. That’s what a consumer needs to look for in a mortgage broker. To be very honest, I think that you want to find someone whose passion is mortgages and helping people. You’ll feel that from your first interview.”

Deane’s business hinges largely on referrals from her extensive business network as well as repeat clients. She knows there is a whole team involved with a real estate transaction – financial planners, Realtors, lawyers – and she tries to establish relationships with the rest of a client’s advisers immediately.

“Look for someone who is willing to work with your whole team,” she advised. “Having experts on your side is so important. As mortgage brokers, what we do and what we study and focus on all day long is mortgages. That’s all we do. Just like when you have a health problem, you go to a specialist. Or, if there is something wrong with your car, you go back to the dealer. You always want the expert as opposed to the jack of all trades.

“In the banking world, you’re dealing with people who are selling many different products at the branch, compared to a mortgage broker who only understands mortgages and makes it their business to know what else is out there in the market.”

Deane said mortgage brokers are bound by ethical and regulatory requirements, and, in B.C., they are subject to continuing education requirements in order to re-license every two years.

“We have to abide by our licensing. On top of being licensed and regulated for disclosure, etc., most of us are members of a professional association. And in B.C., we must disclose our finder’s fees to borrowers on a Form 10, so our clients know exactly how much we are getting paid.”

Denise Laframboise

STRATEGIC ADVICE Denise Laframboise is no stranger to mortgages. She has purchased several properties over the years, and currently owns four that are all mortgaged with different lenders because “the best fit today for one property may not be the best fit tomorrow.”

This is Laframboise’s sixth year in the mortgage business. “Prior to this, I was in healthcare, but part of the reason I came into this industry is that we had rental properties and the information I got from people at the banks was lacking. I was looking for advice and strategy for how to accumulate wealth through real estate. There was no guidance or assistance planning for our next property.”

Laframboise said banks offered her fixed or variable rate options, but that was it. She and her husband had to do their research on investment properties and come armed with relevant questions. Even then, they were often unsatisfied with the answers.

“So, while we were the ideal clients that could qualify anywhere, it didn’t matter without expert advice,” said Laframboise, who now owns and operates LaframboiseMortgage.ca in Whitby, Ont.

“My clientele is similar to me. For me, it’s about giving them more strategic options to help them achieve their goals. Bank rates and products are similar everywhere, so it’s more about the nuances of what you can or can’t do. How we restructure a mortgage on a primary residence may make or break the ability to buy a rental or create tax advantages, if we do it right. That advice and strategy is what I was looking for as a consumer and never found.”

She said that while most mortgage brokers have their clients’ best interests at heart, it pays to research.

“Meet with brokers and ask questions,” she advised. “What is their experience? How many lenders do they work with and what’s their education? It’s OK to interview potential brokers because this is the biggest financial purchase of your life. Talk to a few people, find out who you feel most comfortable with.”

Laframboise, too, has advised clients to stay at their existing lender if it makes the most financial sense. “It doesn’t always make sense to change for rate alone. I’ve done three mortgages for myself in the past year, and not placed once at the lowest rate. I care about the penalties and other benefits, like pre-payments and whether it is portable, that suit my situation.”

In one case, she witnessed clients who had to pay a massive $54,000 penalty when their bank forgot to collect the necessary documentation to port their mortgage. After they purchased, they were told they did not qualify to port.

“In this example, the clients asked if they qualified, but a full pre-approval wasn’t done before they bought,” said Laframboise. “We

helped them with a different lender, but it would have been much cheaper for the clients to not pay that massive penalty. Proper advice was lacking. It’s the equivalent of going car shopping and going to the different dealerships for a minivan. The dealer that doesn’t sell minivans will still try to sell you a truck, no matter what, because that is all they have to offer – even if it isn’t what you need.”

With 58 institutional lenders at her fingertips, Laframboise feels the right mortgage exists for everyone.

“If you want the best-suited option for you, anybody who is really good at this business and in it for the long haul will tell you that strategic advice is key. It’s invaluable.

“Rates are pretty much the same everywhere,” she added. “I tell clients all the time, on the day you buy a house we probably have 10 lenders offering the same rate special. But do we need to add a line of credit? Or can we in the future? Do we need a collateral charge for future borrowing? Is the product re-advanceable? What are the penalties? Is there a good online portal, or does the client like to have a physical branch where they can make payments? These things matter and can save or cost you money.”

Laframboise appreciates anyone who is out there in the industry trying to educate consumers. She said people need to understand more than just rate and realize the questions they should be asking when they are making such significant financial decisions.

Kaela Fraser

PRESERVING COMPETITION While some have proposed a fee-based model for mortgage advice, several brokers feel that will damage the industry by removing the very reason why mortgage brokers exist.

“In essence, if you take away that element of free advice, people will turn back to the banks,” said Kaela Fraser. She and her twin sister, Krystal, founded The Mortgage Duo in Dawson Creek, B.C., in 2014.

“In that case, if they can walk into their bank and get it done without upfront costs, they will, instead of paying a broker up front. It’s kind of backtracking on why this industry was created in the first place, by eliminating that element of competition.”

She explained further: “Mortgage brokers were born because banks were biased and only sold their own products. Now there is competition and banks are competing by lowering rates. But when there is no competition, service levels can decrease.”

Fraser also pointed out that bank representatives are often new to the job, with little mortgage experience.

“There is no requirement to have a certain level of knowledge,” she said. “As mortgage brokers, our incentive is to get the mortgage done, while the bank rep gets a salary. It’s not their reputation or their commission on the line. So, there is more incentive for us to get it done, to know our lenders and their guidelines.”

For example, mortgage brokers are a borrower’s best resource when it comes to deals that are unique or a touch different.

“If someone comes along and they have rental income that will make or break them being able to purchase, we have a large number of lenders we can access that allow varying degrees of rental income,” noted Fraser.

“Having access to those options makes a big difference. It can be very case specific, as to why you have to go to one lender or another. You may not qualify under certain guidelines. When it comes down to it, getting the best rate isn’t hard to do – finding the right mortgage can be harder.”

She pointed out that brokers often work outside bank hours and can provide additional services, such as help with appraisals, inspections and setting up property taxes. Plus, when it comes to pulling documents and doing credit checks, your broker only has to do it once within a 30-day period, versus several times by each individual bank.

While Fraser agreed that the difference between lender payments to brokers is slight, she said experienced brokers often prefer a particular lender because of how they perform, not because of what they pay.

“Sometimes, it comes down to the relationship built and how quickly things can be processed, which in turn can save the client money,” she said. “There could be a lender bias for other reasons besides compensation.”

In the end, it’s about obtaining the best advice for the biggest purchase of your life.

“Do your due diligence and choose a mortgage broker who aligns with your interests,” concluded Fraser. “Look at references; their reputation. You build that relationship and feel confident in their expert advice.”