Good Morning DINKS. Today we are discussing the balance between receiving good customer service from our Financial Advisor and finding the best pricing for our financial products. Let me ask you a question, if you could only have one which would you prefer to have? Establishing a relationship with a Personal Banker is important for us to receive good customer service, but at the end of the day all that matters is the bottom line and how much that service will cost. I personally prefer to have better products at a lower price. However, what cost comes with a good price?
As a Personal Financial Planner my main focus is Investments, Retirement and Estate Planning; however I also try to help my clients with their Mortgages. Since 2008 the credit rules at Financial Institutions have become tighter and it is becoming harder for clients to be approved for their Mortgage loan. I have a client who wants to refinance her Mortgage but unfortunately she was not approved with our Financial Institution. She proceeded to look outside the Bank to find another solution to refinance her Mortgage.
My client found a Mortgage Broker who was able to approve her Mortgage refinance and offer her a really good fixed interest rate. My client did not receive any cash back from the Financial Institution but the Mortgage Broker did offer to pay for her notary fees, this was generous since the cost comes out of his own personal commission. Mortgage Brokers are independent workers who are “sponsored” by Financial Institutions. Mortgage Brokers work for themselves, but they have working relationship with several Financial Institutions, Banks, and Finance Companies. A Mortgage Broker is paid a commission by the Financial Institution whenever their clients mortgage is approved. The commission is approximately 0.0125% of the total Mortgage value. Therefore, on a $300,000 mortgage loan a Mortgage Broker will earn $3750 in commission.
The benefit of using a Mortgage Broker is that they will shop around and find the best Mortgage rate for us, this eliminates a lot of extra work and wasted time for us. When we shop around for Mortgage Rates and Mortgage Pre Approvals each Financial Institution will check our credit and put a hit on our credit bureau. Having a lot of hits on our credit bureau can significantly lower our credit score. Mortgage Brokers only check our credit once and then submit it to different financial institutions to see which one will approve our application.
The downside of using a Mortgage Broker is that they are only negotiating interest rates on our behalf. Usually Financial Institutions who work with Mortgage Brokers do not offer a cash back option or cover any additional costs such as notary fees or inspection fees. These financial institutions may offer cash back when clients apply for a mortgage directly with the Institution but the interest rate will be higher. My client was lucky that her Mortgage Broker offered to pay her notary fees, and on top of it she was getting a really great interest rate on her Mortgage Refinance.
The Mortgage Broker had to submit my clients application to several different Financial Institutions before he could find one that would approve it for her. My clients personal situation is a little bit special because she runs a daycare out of her home and also receives government supplements that she has to declare on her income. Apparently the Mortgage Broker felt that the time he spent on reworking and resubmitting my clients Mortgage application was more valuable than the amount of commission he received on her $410,000 mortgage aka $5125. My client refused to pay any additional fees to the Mortgage Broker because there was nothing in their contract that said the Broker could request any additional fees, and that those fees were at his discretion. The Mortgage Broker was asking for an additional $1500 from my client.
After two weeks of exchanging phone calls and one week of my client avoiding his phone calls the Mortgage Broker decided to show up at my clients home and demand the money. Remember that my client runs a daycare out of her home, and at any given time she could have 7-10 young children in her home. The Mortgage Broker finally left her property, but he decided to sit in his car on the street in front of her home. She was afraid for herself, her family, and the children she she called the police. The Mortgage Broker was escorted away and warned never to return.
By working with a Mortgage Broker, my client got her (otherwise unapprovable) Mortgage approved, she received a really low interest rate, but she also got harassed. This story proves that everything has strings attached and nothing good ever comes without a price tag.
Photo by Casey Serin