The way you get a mortgage five years from now could look very different from the way you get a mortgage today.
National Bank of Canada's decision to stop selling its mortgages through brokers is just a hint of what's to come. Lenders are looking for every possible way to make more money from you, the mortgage consumer.
National Bank would rather have you come to it directly than through a broker. That way, the bank:
1. Doesn't have to pay a broker's commission (Bank staff make less per mortgage than brokers.)
2. Creates a more personal relationship with you (so the bank can sell you more stuff, like investments and other loans; brokers don't "cross-sell" the bank's other products)
3. Won't have to battle your broker for your mortgage at renewal
4. Doesn't have to invest in technology and staff to support a separate broker distribution channel.
You might be thinking that brokers cost lenders too much and you'll get a better deal by negotiating directly with the bank. These days, that would be mostly untrue. In a majority of cases (not all), brokers still quote rates that are as good as what the banks quote their own customers directly, if not better.
But if we fast forward five years into the future, this could change. In the brave new mortgage world, we'll be shopping for loans a little differently. Here's what my crystal ball foretells about the mortgage market in 2021:
Banks Will Ramp Up Their e-Mortgage Channels
"We feel that in the relative near future that online origination of mortgages will be a fourth distribution segment," said National Bank CEO Louis Vachon in September.
National Bank is hoping its new e-mortgage (or whatever it ends up calling it) will replace lost broker volumes. Essentially, you'll go to the bank's website, get rate quotes online (likely cheaper than you'd get in the branch), talk live to bankers via webchat, upload your own documents and track your mortgage through to closing – all online.
"We feel that over time, [selling mortgages online is] going to be as attractive, if not more attractive … than the traditional third-party brokers market," Vachon has stated.
The Internet Will Rule Rates
Most homeowners will start their rate shopping online. Why? Because it's fast and convenient. Mortgage websites that appear highest on Google will get the most traffic and set consumers' rate expectations. All lenders, not just online lenders, will have to pay attention to what's happening online. That will ratchet up rate competition to yet another level.
Lenders Go Direct
As lenders figure out how to capture your attention online, they'll eliminate commissioned staff and middlemen to cut costs and stay competitive. They'll then pass much of that savings right on to you by way of lower mortgage rates. But when it comes to online-only lenders don't expect the same human advice you get today. Just as robo-advisers are taking the investment world by storm, so too will they infiltrate the mortgage business.
Brokers Dominate Alternative Lending
The best deals often come from big bank challengers. Brokers will always be invaluable for consumers who don't want to compare rates themselves, or who can't get approved by a bank. With all the recent government rules, some lenders now have eight different rates for a 5-year fixed mortgage. Experienced brokers will continue helping folks sort out which of those rates translates to the lowest cost of borrowing, given the ever-growing array of penalties and rate restrictions.
Banks Will Keep Funding Other Lenders
To be profitable, banks need mortgages. Lots of them. The banks that can't get enough business on their own (most of them) will buy other lenders' mortgages. In fact, National Bank has also announced that it is increasing its funding for non-bank lenders like Merix Financial, which, interestingly enough, sells all of its mortgages through brokers. So the bank is staying in the broker channel indirectly to keep the mortgages rolling in.
The National Bank news reflects a mortgage market that's evolving faster than at any time in its history. The good news is that e-mortgages will force more competitive rates. The trade-off is, you'll increasingly need to do your own mortgage research, or pay a premium for independent "full service" mortgage advice.