Plenty to focus on in the current market, mortgage industry insider says
Interest rate hikes, skyrocketing borrowing costs and an uncertain future for Canada’s housing market are creating plenty of headwinds on the mortgage front – and in that climate, it’s essential for agents and brokers to avoid bringing a “one-size-fits-all” approach to their clients.
That’s according to TMG The Mortgage Group agent Ryan Sims, who told Canadian Mortgage Professional that the right solution for one borrower might not be suitable for another, particularly when it comes to the type of mortgage that fits each client type.
“I think it’s case by case with every single client – ‘why are you buying this house? What are you looking to achieve?’ – and picking a product that is going to work for that very particular client situation,” he said.
For instance, while locking into a fixed-rate option may be a popular choice for many borrowers in the current market as variable rates surge, Sims emphasized that’s not necessarily the best move for every scenario.
“If you have a client that says, ‘I’m going to live in this house for three years,’ putting them into a five-year may not be the best answer,” he said.
“One thing that a lot of people have to remember is we’ve seen this game before, around 2008. If for whatever reason rates fall precipitously from here, if you’ve got a client that’s locked in at a 6% five-year and they sell two years in and rates have dropped, we’re back into those staggering IRD [interest rate differential] penalties.”
Canadian Real Estate Association (CREA) senior economist Shaun Cathcart noted that while a bumpy ride could be in store in the coming years, home prices were likely to continue climbing.https://t.co/q0c0yiWKRl#mortgagenews #industrytrends #homesales #houseprices
— Canadian Mortgage Professional Magazine (@CMPmagazine) June 22, 2023
Why disclosure is so important for mortgage agents and brokers
There’s potentially plenty of unpredictability ahead for interest rates in Canada, with little clarity on whether the Bank of Canada will continue to hike for the remainder of the year or hit pause.
That means full and comprehensive disclosure should be an essential component of every mortgage agent’s interactions with their clients, Sims said, so that every party in the process is on the same page and fully understands the rationale behind a decision.
A recommended approach might involve recording and typing up the minutes and content of each discussion to be signed as part of the commitment, he said, leaving a full record of what was covered and the deliberations behind every decision.
“My concern right now is clients [can be] emotional: ‘I can’t take these increases, just lock me in and put me in the five-year,’” he said. “What if, hypothetically, we saw another 2008-type event come September and rates go down 300 basis points in the fall?
“How’s that client going to feel if they’re locked in 5.89% today when the variable goes back down 300 basis points? Is that client going to remember that they told you to do that, or are they going to say, ‘Well, I think my mortgage broker told me to do that and I don’t think that was a good idea at all?’”
Such an approach is essential in any economic environment – but particularly now, he said, when things can change in an instant amidst a rapidly shifting landscape.
Where does opportunity lie for agents and brokers in the current market?
Ultimately, there’s a strong opportunity in the current market for agents and brokers to put their services forward and highlight their value proposition compared with some of the institutional lending giants, according to Sims.
“I think mortgage agents and mortgage brokers are probably going to add more value in the next year or two than they ever have. A lot of people say, ‘The banks can do this, the banks can do that,’ but the banks aren’t going to customize a plan, individualize a plan, and really go through it with those clients,” he explained.
“We’re hearing from a lot of clients right now that they’re scared, they’re emotional. They don’t know what to do. They don’t know what to believe, who to believe. There are all these stories out there. [They have] the ability to contact us, have a meeting, have a phone call, a Zoom call, a cup of coffee… I sit with them and get them more rational, get them thinking hard things.
“I think our job and our value proposition will become even better over the next couple of years.”
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