Why They’re Not Really In The Mortgage Business
Often, when we talk to you about mortgages, Mortgage Professionals will provide you a set of choices involving banks, credit unions and single service providers called a “Monoline” lender and a recommendation. Many times, if it’s a good fit, we recommend a Monoline lender, as your first option.
It’s important to recognize the differences
Monoline Lenders and Banks are very different businesses, and how they approach mortgages can have a very significant impact on you.
Monoline Lenders
Are in the business of providing nothing but competitive mortgages to you. It’s important to stress that they offer competitive mortgage products. As a group, they provide great rates and more importantly, flexible mortgage repayment terms, all in an effort to be competitive.
The Big Banks
Are not in the mortgage business. They are in the financial services business. It’s a very important to understand that their focus is not about being competitive in the mortgage business. When you work at a bank, you hear all the time that the bank doesn’t make any money on its mortgage portfolio. You come to see how true this is when you see the incredible focus that a bank has on minimizing costs, how it’s almost impossible for you to step out of the normal process to help clients with special circumstances.
The Golden Mean of Profit
For a bank,the Golden Mean of profit is the strict proportion of average products and services per client. Their golden number is that each client has an average of more than 2.75 products and services. For example, if you have a chequing account, a mortgage and a Visa, you’re profitable for the bank. Move any one of those and you’re not profitable anymore.
The intense focus on profit and managing costs means you pay more for mortgage financing. Not on something as obvious as interest rate, but on the options. Say for example you’re in a fixed rate mortgage and you need to pay out your $350,000 mortgage before the five year term expires. If you were to pay out two years into a five year term, depending on who you’re dealing with, the penalty can be as little as $1,500 or as much as $13,000 depending on the lender you choose. Banks typically charge higher penalties because they’re not in the mortgage business – they don’t need to be competitive and also as a way to closely manage costs.
The big banks aren’t evil, managing costs is what drives up profit for them.
The most important thing for you to remember is that they’re not really in the mortgage business.
How Can Our Mortgage Brokers Help You?
What are the benefits of using us? Rather than you shopping rates from lender to lender, we handle the entire process on your behalf by assessing your financing options and seeking competitive bids from lenders. We benefit you by providing a transparent application process that gives you, the home buyer, more information, more power and less hassle. Contact us today.
Original Article – Dominion Lending Centres – November 28, 2017
