A study done by Maritz Research reveals some very interesting stats about mortgage brokers and Canadian homebuyers. Here’s a sampling of the stats:
* Brokers have the top market share of brand new mortgage originations (40%) but hold only a 23% share of the renewal market (which includes early renewals and renewals at maturity). * However, those renewing through a mortgage broker saved approximately 40 basis points on their rate versus those who renewed elsewhere (or with their current lender). * Maritz found that low rates are the number one factor for clients when making “their initial mortgage placement decision.” Rates are over three times more important than the next two factors, which are lender reputation and pre-payment flexibility. * Only 33% of Canadians have a “full” or “good” understanding of what mortgage brokers do. * 17% of Canadians are aware of the Accredited Mortgage Professional (AMP) designation, up from 10% in 2007. * 40% of Canadians would “strongly prefer” to get their mortgage from an institution that offers other financial products.
The study seems to indicate that new buyers are choosing mortgage brokers over banks 40% of the time, primarily for lower rates. However, upon renewal, the majority of homeowners reverse this trend and are simply signing their renewal letters instead of shopping the market for a better deal. So, rate matters in the beginning but perhaps convenience wins out farther down the road.
Anyone would agree that it’s easier to sign a piece of paper than make some phone calls and go through an approval process with a new lender, but the savings for this minor inconvenience can be impressive – an average of 40 basis points, according to the study.
To illustrate what a 40 basis point rate reduction would actually mean to a homeowner over the 5 year term of an average mortgage, we ran the numbers for a mortgage of $250,000 and used the interest rates of 5.2% and 4.8% ( a 40 basis point spread) to calculate the payments.
The savings realized by obtaining a mortgage for 4.8% as apposed to 5.2% came in at approximately $4,800 over 5 years, so just under $1,000 a year.
If you use a time vs money comparison, inquiring about, applying and gathering paperwork for a new mortgage probably takes you about 4 hours total – a generous guess, I think. If you were to divide a $4800 savings by 4 hours, you are netting $1200 an hour for your time invested. Perhaps a simplistic equation but you get the picture – a little time can save you a lot of money!
Mortgage brokers really do make the “switch to a new lender at renewal” process easier by offering comprehensive rate/ product/lender comparisons in one stop and many of our lenders are striving to make things less labor intensive by keeping paperwork to a minimum.
So what if your lender is offering you a pretty good rate at renewal? Well this is where the latter part of the study’s stats come into play. Having an understanding that mortgage brokers offer more than just competitive rates but educated, experienced guidance can make you all the richer. A mortgage adviser, or in the case of renewal, a piece of paper, that recommends the wrong mortgage term, can easily cost you 50-100 basis points over a five year term. An experienced, licensed mortgage broker understands the impact that a particular mortgage product and term can have on your overall financial life and is able to assist you in making the choice that best matches your goals.
Tomorrow – Part II of this article where we’ll take a look at what the AMP designation is and whether it really is advantageous for your mortgage lender to offer additional financial products.
Source of Stats – Maritz 2011 Mortgage Broker Study