Just like in any other business, mortgage brokers need to seize opportunities to increase their profit as much as they can. But also like other businesses, some brokers can go a bit too far. And that’s what some consumers think True North has done with their new cancellation fees.
True North is the brokerage introducing cancellation fees on every deal that they work on. But before you decide whether or not they’re fair, you first have to understand a little about how shopping around for a mortgage works.
Sometimes, it’s very easy and straightforward. A home buyer will shop around to different lenders or brokers to see who can give them the best rate, and they’ll end up using the broker or lender that either gave them that best rate, or who they feel most comfortable working with. For most people, the mortgage rate shopping game ends here. But there’s another side to the story – the broker’s side – that is never told.
Mortgage brokers must maintain a high closing ratio in order to continue working with lenders. That ratio represents the amount of mortgage approvals they obtained in relation to the amount of closings the broker has. And this is where the problem for brokers occurs.
Mortgage shoppers are so savvy today, and know so much about rates, that it’s all too easy for them to obtain a good rate from a mortgage broker, and then go to their bank and ask them to match it. Banks don’t want to lose the business to brokers so often, they will. The consumer goes back to the mortgage broker, cancels the mortgage deal that has already been fully approved, and continues on with their bank to get their mortgage. Good for the customer, but very bad for the broker who was actually the one to do all the work.
True North is the mortgage brokerage that has recently introduced these cancellation fees, but they say that it hasn’t affected business. In fact, the volume of the mortgage deals that they’ve done since instating the fee has gone up by 1 per cent. And, they argue heavily that the fees only apply if the consumer cancels the deal and has their bank match it. If the buyer has simply found a better rate, if they’ve decided not to purchase a home after all, or if a deal on a particular home has fallen through, the fee would not apply.
Reaction in the industry has been mixed. Some other brokers are concerned that these fees will be buried deep in paperwork where the consumer won’t know about it until it’s too late – and that will leave a mark on the industry. Some realtors say that they understand the fees perfectly, because they have the same kind of infrastructure in their business.
What do you think about the cancellation fees? Are they something that’s necessary to keep consumers honest? Or is it just another fee that takes away consumer choice?