As more and more Canadians start to turn to Toronto mortgage brokers and Ottawa mortgage brokers to find them the best mortgage deals, the banks are becoming increasingly worried.
The mortgage market is already competitive enough within the Big Banks themselves, and brokers offering homebuyers and homeowners a better deal are now eating into those banks’ profits even more. But the banks are strategic players and now they have one more move in their arsenal to try and win customers back. Some are now offering to step in and waive refinancing fees just to keep the business at the bank. But as they’ll soon see, this is not a viable approach for the banks to make more money, and it could end up hurting them in the long run.
It was something done by the banks during the market crash of the 1980s and 1990s, and it didn’t work back then either. When a customer wants to refinance their mortgage and is considering going to a broker instead of refinancing with their original bank lender, that lender will offer to waive their refinancing fees – which means that the bank is just going to take the hit instead and lose out on more profits. The upside? They’ll keep the customer and all future profits that customer brings into the bank.
A sound strategy in theory, but one that’s already proven itself as fairly useless. One mortgage broker, Jessi Johnson says, “I had heard about this occurring back in the 80s and 90s, but I hadn’t ever encountered it until recently.” He goes on to say that his brokerage in Vancouver has already “had about three or four recent cases where the banks are willing to eat the penalty in order to keep a refinancing client.” Johnson also says that brokers simply “can’t compete” with this strategy.
But the good news is that brokers probably won’t have to compete with hungry banks, as it doesn’t prove to be a viable business strategy and it hasn’t worked when they’ve tried it in the past. Typically, refinancing penalties and fees are higher than the commission the bank would be paying to the broker, and so they’re still losing money. In addition to that, what the bank is actually offering the customer isn’t that good. Sure they may not charge excessive penalties, but you can bet they’ll make up for their profit loss. And they’ll do that with higher rates, as another mortgage broker pointed out.
Todd Fralic, mortgage broker from Calgary said, “It happens. But usually in our experience, the banks make it up on the back-end, with a slightly higher rate. Nothing surprises me with the banks offering deals that don’t seem to be good business.”
The lesson for homeowners that are now looking to refinance? It still pays to go to a broker. The banks might be offering to eat penalties. But go in with the knowledge that they’re still working for their own profits, not the customer. And even if they’re willing to absorb the refinancing fees, they’ll send those fees right back to the customer in some form or another – and usually it’s with higher rates.
