Blog

As a mortgage broker, you are guaranteed to enter into the ping-pong interest rate game. Are you prepared so you reduce your risk of losing the sale, without losing your commission at the same time? Let’s make sure by looking at the all-too-familiar scenario.

A mortgage broker quotes a potential borrower the best rate available at that time. The broker has answered all of the questions and concerns of his or her clients and disclosed all the relevant points. The broker explained the weaknesses in the borrower’s loan application and guided and helped the borrower(s) to resolve those issues.

The broker also assisted the borrower in obtaining the right paperwork, helped them avoid the usual pitfalls, and assisted them in putting together an accurate and complete loan file. The mortgage broker then submits this loan to a lender after discussing with the borrower the reasons for choosing that lender. Subsequently, a loan commitment is obtained.

Equipped with this loan commitment, the borrower proceeds to look for a property. After several weeks, even months, he, she, or they finally find the right property. The mortgage broker now assists the borrower with various issues, helps them identify a lawyer or a notary public, and takes care of all other outstanding issues.

A few weeks, sometimes even days before the completion date the borrower goes to his or her bank and either intentionally or unintentionally inquires about the bank’s interest rate. The well-trained bank employee probes and finds out the interest rate at which the borrower’s loan has been approved. Magically, on the spot, a lower rate is offered to that borrower.

The borrower informs the mortgage broker about the lower rate and threatens to take his, her, or their business to the bank because the same bank that the borrower did not bother asking before is now offering a few basis points less in the interest rate. The frustrated mortgage broker succumbs to the pressure, quite often giving up his or her own finder’s fee to buy the rate down for the borrower, only to find out that borrower went back to the bank and negotiated even a lower rate before you hire a real estate agent or a realtor.

That is the ping-pong interest rate game.

It’s a game that most mortgage brokers lose. Strictly speaking, there isn’t anything wrong with this process. Banks take the position that they’re free to offer special discounts to gain business. And borrowers feel within their rights to play the ping-pong interest rate game to save what usually amounts to just a few dollars.

Begin with constructive strategies from the start of the mortgage loan search.

There are no magic pills for this one. The answer, if there is one, lies in full and complete disclosure at the start of your business relationship and insisting on an unequivocal agreement from the borrower to work through this kind of situation. There is little a mortgage broker can do about a system that allows the banks to undercut the competition after they become aware of the competitor’s price. Is it fair? Of course, it isn’t.

It is my experience that most consumers are well-meaning, reasonable, and ethical folks. I have found that outlining this potential scenario upfront and getting a commitment from clients at the start of the relationship helps tremendously. Take the time to explain to your customers the various types of mortgages and the restrictions and limitations that are built into those mortgages. Explain how most banks are not obliged to explain the ins and outs of these types of mortgages that may not be advantageous to your clients or that take away their freedom to make prepayments etc.

Is this a foolproof solution? Not really. However, it significantly enhances your chances of retaining clients you’ve worked hard to serve instead of losing the sale when faced with this ping-pong match.