A new proptech product seeks to streamline customers' buying experience even further
It’s a question that’s on many mortgage shoppers’ minds right now: with interest rates set to begin climbing in 2022, what’s the best option between a variable- and fixed-rate product in the current climate?
A range of different factors are likely to ultimately influence that decision, from the views of the customer’s mortgage advisor to their overall sensitivity to risk.
Yet through a new mortgage tool that relies on predictive modelling and interest rate forecasts, Toronto-based proptech firm Perch believes it’s uncovered a way of narrowing down each shopper’s options to unearth the best product for them based on how the market may be turning.
Chief executive officer Alex Leduc (pictured top) told Canadian Mortgage Professional that the company’s web-based application tool Pathfinder – newly launched this week after a months-long redesign process – used market simulation and other modelling to help provide as comprehensive an assessment as possible of the best options for customers.
“There’s the fundamental question that a lot of people always ask: ‘Do I go fixed or variable? Do I get a one-year term, a three-year term, or a five-year term?’” he said. “We built in predictive modelling and interest rate forecast modules where we can actually simulate what the expected prime rate increases would be, or the movements in bond yields to essentially get an idea for what the renewal rate would be.
“I definitely don’t have a crystal ball – it’s not like I can predict it with certainty. But what we do try to do is take the market consensus on where the general market thinks rates are going and then factor that into expected rates and payments that somebody would make.”
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After asking for details about what a buyer or existing homeowner wants to do with their mortgage, users are able to view and sort offers by filters including term length, prepayment flexibility, mortgage rate and total savings.
It’s also possible to view real-time mortgage rates online – although Leduc noted that the company had worked hard to ensure that the decision was based on more than simply the lowest rate that was appearing.
“Where I’d say this differentiates substantially from, say, a rate comparison site is that [there], you essentially only have the ability to do a univariate comparison. What I mean by that is, I can look at one five-year fixed rate versus another one.
“Other than knowing that 2.2% is better than 2.3%, there’s not much I can do beyond that. We tried to make [Pathfinder] so it [answers the question], ‘How do you actually pick the best mortgage?’”
That means the tool doesn’t go into teaser rates, Leduc said, with the questions to customers helping trim down the range of options based on what’s actually available. Perch’s cadre of mortgage advisors is also essential in the process, helping provide customers with quality counsel based on the specific circumstances of each user.
“Sure, the five-year fixed rate might be the best one, but if someone’s looking to sell the house in two years, then obviously we steer them in another direction,” he explained.
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Leduc emphasized the importance of mortgage advisors in the Pathfinder process, particularly when it came to validating information and walking clients through the preapproval stage. He said that rather than replacing advisors, the Pathfinder tool was geared towards “cutting that first layer of exploration” for its customers.
“[If] you have a client that’s shopping around rates, there’s no point bringing in an advisor if they haven’t even decided they’re going to work with you,” he said. “The Pathfinder is really just meant to enable: ‘Here’s what I could holistically offer you. Here are the rates you can get it at. Here’s a little bit of information to help you self-select and narrow down.’”
One intriguing trend to come from the simulations run through Pathfinder, Leduc said, is that they sometimes refute the conventional wisdom that the penalties associated with variable-rate mortgages are less punitive than those for fixed-rate products.
“What’s really interesting in Pathfinder is [that] the going notion that you should always get a variable rate to guarantee a lower penalty is actually not always true,” he said.
“In this case, with the rising rate environment, we’re finding that the penalty simulator is actually showing lower penalty sometimes on fixed rates instead of variable rates because some of them charged on the primary – not the actual rate.”
