Today’s blog comes from our colleague Allan Jenson. It’s hard to believe that 100% of home buyers are using a mortgage broker, or at least getting a 2nd opinion about their mortgage. We typically don’t charge for our time, we can almost always get a better rate and term than the bank and we can almost promise beyond a shadow of a doubt that our penalties to break a mortgage a much smaller than the bank’s. Enjoy the blog.
MORTGAGE BROKER VALUE
Not surprisingly, borrowers often default to their own Banker. And why not? It’s an established and comfortable relationship. Perhaps it’s viewed as the path of least resistance. But is it the right lender for the borrower’s current specific needs? Perhaps not.
More sophisticated borrowers may be of a size or scale that they have their own internal resources in finance, quite capable of securing the required financing. They are likely only in the market infrequently however, and almost certainly not fully knowledgeable as to all of the financing sources available.
Aren’t all Lenders pretty much the same?
Borrower’s may think that all institutional lenders are pretty much the same. Offering comparable rates, and standardized borrowing terms. This is rarely the case. Lender’s often prefer one asset class over another. They may have a particular need for one type of loan. A specific length of loan term may be desirable, for funds matching purposes. Real Estate risk is a fact for real estate lenders. How they mitigate this risk differs however. It may be stress testing interest rates during the approval process. Sophisticated risk pricing models may be used, having regard to previous loss experiences. The lender may rely significantly on collateral value, or guarantees. The conditions precedent to funding will often differ from lender to lender.
A real world example
I had the pleasure last year in advising a client who had 3 sizable real estate assets, in 3 quite distinct asset classes. The borrower’s loan amount requirements were significant, however they were flexible on loan structure. Accordingly, I sought out competitive, but differing deal structures. My goal was to provide a competitive array of options. A number of “A” class lenders were approached, several/most of whom this particular borrower had no previous experience with. I shortened the list to 5 lenders, and received Term Sheets from each.
Each Offer was competitive on a stand alone basis, but they differed quite substantially, in the following ways:
Loans were either stand alone, or blanket loans, or some combination.
Length of terms offered, differed by asset class.
There was as much as a 75 bps rate difference, from highest to lowest Offer.
The amortization period depending upon asset class, ranged from 15 to 25 years.
Loan amounts on individual assets differed as much as 20%.
Third party reporting requirements differed between lenders.
There were a combination of fixed vs. floating rate loan structures.
Recourse was limited by some lenders, on select assets, or waived entirely, upon a higher rate structure.
Leverage Your Knowledge
These variances are striking, yet each of the 5 lenders were considering the precise same asset, at the same time, with common supporting information from which to base their analysis. How was the borrower to know which Offer to exercise? As a Broker, I can add value by helping the borrower to consider both their immediate and longer term strategic requirements, in the context of their overall real estate portfolio needs. This was precisely how this borrower landed on the most appropriate Offer for their particular circumstances. In this particular case we presented different, yet competitive, and uniquely structured options for the borrower’s consideration.
Consider a Dominion Lending Centres Mortgage Broker when next in the market for financing. Leveraging a Broker’s knowledge is a tremendous value proposition.
Dominion Lending Centres – Accredited Mortgage Professional