Be the expert, not just another order taker
Clients often (nearly always) request a 5-year fixed mortgage. The easy, and the lazy, path is to simply give them what they ask for. However our role as Brokers is to be the expert advisor, not simply an order taker.
Advise
Our role is to present options, and currently a popular and arguably very logical option is the 2-year fixed.
This hasn’t always been the case. Just six months ago the 5-year variable was an excellent alternative to the 5-year fixed. However at this time the discounts on the variable are less attractive than they were, leaving the 2-year fixed as the rate leader. And it seems unlikely that interest rates will move sharply upwards within the next two years.
The new federal government seems committed to deficit spending and immense investing in infrastructure (i.e., borrowing to build) in order to hit the gas pedal on the economy. Were the Bank of Canada to increase interest rates, this would be akin to the fed putting their other foot on the brake pedal of the economy.
The coming two years, even just 18-20 months (factoring in early renewal), seem easily predictable. Beyond 20 months my crystal ball is far murkier. To sum up, a 2-year fixed has key advantages:
- A fast-approaching option to renew, likely at a similar low rate.
- A (2-year) fixed-rate mortgage is now discounted more than a variable, so it’s a better deal.
- If the clients break this mortgage for any reason, they’re far less likely to face the punitive early-exit penalties (triggering a ~0.50% penalty rather than a ~4.5% penalty).
- Stability and predictability, no worries about the next 16 Bank of Canada meetings.
The fact remains that most clients show up at our doorsteps wanting a 5-year fixed, or even 10-year fixed product. And often it takes a lot of energy, math, and talking to open their minds. Of course it would be much easer to simply shut up, save hours of time, and put people into a 10-year or a 5-year with a chartered bank. In turn we actually get paid more money for giving clients what they asked for to begin with.
But easy does not mean correct.
We all know that we would be putting many clients in a horrible position with the longer-term fixed products. Sure we make more money, and hey it’s what they asked for after all…but we need to be the professionals that we know we can be.
Be the expert advisor
Be the expert in the equation. It’s our job to steer our clients towards what’s best for them. Regardless of how much time it takes, regardless of how much lower the commission may be.
Are you focused on solutions for your client, or are you focused on solutions for you?
What about renewals? (many Brokers ask)
What about them? If we have done our job correctly and placed our clients with a quality lender to begin with, then why would we put them through the hassle of moving to another lender at renewal? Who is moving the client a solution for?
A lazy order taker will receive a corresponding number of referrals.
Show clients something unique, even if it pays you seventy cents on the dollar, and you will also get a corresponding number of referrals. In other words you will earn more by making less.
A Mortgage Broker is not meant to be an order taker. You’re not working a fast-food register. When they order a heart-attack burger and shake you want to look them in the eye and ask them, Are you sure? Are you aware of what these product are composed of and how this is processed? Are you aware of the potential ramifications? Are you sure this is what you want? Might I offer you some alternatives that could prove far less damaging down the road?
Often I start the conversation with the suggestion that all clients would do well to asked their Brokers one question in particular ‘What have you done with your own personal mortgage(s) and why?’
Let me tell you about what I have done with my own file…
In our business, not bothering to explain things in detail, just giving in to the clients’ prejudices, and worst of all chasing a bigger commission are all things that will put a Broker on a fast track to the exit ramp from this business. The less you care, the less you earn.
Don’t give clients what they (think they) want; first challenge them on why they think they want a specific product. Do some math for them. Be open, be advising and be the expert.
Give clients what they need.
Expert Advice!
This post was inspired by Episode #004 of ‘Ask A Broker’ An I Love Mortgage Brokering production.
Thank you.