Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Doing a research on rates and shopping for rates are two different things.

A mortgage rate research typically means gathering intelligence on rates offered by various lenders and the associated conditions. The research helps a would-be borrower to understand the pros and cons of different offers and products.

The person who is doing the research gradually collects the wisdom and becomes capable of making a balanced decision.
rate-shopper-problems
A rate shopper is a slightly different breed. They are not into the business of gaining knowledge. They are just looking out for the lowest rate. Generally their phone calls are short and come without any formal introduction.

Hello, mortgage agent? What is your rate? Five years fixed and five years variable. Oh! Yes tell me your best three years fixed.

The call will start like this. Before the agent can have some detail on the mortgage – he will be challenged with a bizarre rate matching question.

The call will not really go far. After few sentences the broker will be able to fathom the potential of the deal and he/she will take next logical action.

It is generally hard to satisfy a rate shopper because of the following reason.

  1. They first go to a big bank. Where they challenge the banks mortgage rep with the rate matching puzzle citing some broker rate.
  2. The bank reps often advice the shopper that the brokers get rate from mysterious institutions where their mortgage may not be safe.
  3. The first two steps make them fearful.

  4. Next they start googling for better rates. Spend countless hours in rate sites.
  5. After the rate sites it will be brokers turn. When they reach a broker then they play the same game. The broker will offer some low rate.
  6. Then they again approach the bank and get refused to get a low ball rate at par with the brokers rate.
  7. Later they seek advice from friends and try to get more discounts.
  8. After they manage to get an approval – they start to dissect the numbers. They spend countless hours and come back with questions.
  9. Finally they fall into the time pressure and are forced to pick a lender – which is not the best one for their particular interest.

The issue with these type of shoppers is that they are simple people who do not realise where to stop. Partially driven by greed and partially driven by the fear of being cheated by the world – their judgment gets clouded.

Obviously when our mind is fixated on only one factor then we miss all the other ones and finally miss the real boat.

Example:

Once I offered a low fixed rate on five years term – to a shopper. He came back to me after few weeks and told me that a bank has offered him 2% lower rate than mine on a one years fixed term.

He went with the bank. We moved on.

A year later he called me and asked for a rate. I offered him a rate that his bank will not match. It offered him a higher rate. He wanted to change the lender.

As usual he dissected the expenses and found out that the legal expenses will be higher than the savings.

He once again locked in with the same bank at a higher rate.

A year later – now he has a HELOC.

He is now just stuck. He has abandoned his relentless hunt for a better interest rates.


Now – do you know if you suffer from a rate shopper’s syndrome?