"Hey Siri, what's the best mortgage rate?"
That's how millions of us will some day begin the mortgage shopping journey.
And "some day" isn't far off. People already ask their phones for mortgage advice, and it's a trend that should have every banker and mortgage broker looking over their shoulders. Here's why.
Savings, speed and ease
These three reasons are why more than 95 per cent of prospective borrowers will some day rely on search engines and/or robo-mortgage advisers (chatbots, for example) to pick a mortgage.
The benefit is clear. Asking mortgage questions to Google or a chatbot yields instant answers – without salesperson smalltalk and bias. Who doesn't want to compare dozens of mortgages and get tailored mortgage recommendations in less time than it takes to get a coffee at Tims? The tipping point will occur when the quality and objectivity of robo-advice has proved itself (we're not there yet).
But it's savings that will make e-mortgages a true killer app. Today, the difference between an average mortgage rate and the best mortgage rate is more than 0.25 percentage points. That's a five-year savings of $2,500-plus on a typical Canadian mortgage. If a bot can help you locate such savings – in just minutes – it'll have every well-qualified borrower in Canada asking one pivotal question.
Why do we need bankers and brokers?
Already, more than three in four Canadians compare mortgage options and features online, Canada Mortgage and Housing Corp. says, and it's increasingly done through their phones. One in seven millennials even say they'd trust a robo-adviser for "quality and impartial" mortgage advice, an HSBC survey finds.
In time, programmers should outnumber commissioned salespeople in the mortgage business. By 2027, I suspect more than half of well-qualified prospective borrowers reading this story will get a mortgage without ever speaking to a lender by phone or in person. One smaller bank, Alterna Bank, already offers this option.
Most big banks are hesitant to promote Internet mortgages. Not only are they behind the curve technology-wise, but they don't want to hurt morale of their existing mortgage salespeople. They're also fearful of consumers thinking they can get better deals online, thus cannibalizing the banks' branch and mortgage specialist channels.
Indeed, almost no one gets a mortgage today without speaking to someone. But technology advancements such as automated income and down payment confirmation, e-signatures and instant online approvals are already here, or coming soon. That, and the cost savings, will drive adoption of online mortgages faster than most in this business care to admit.
Speaking of cost savings …
Direct-to-consumer (DTC) is a buzzword in mortgages. It refers to lenders eliminating or mitigating middlemen, thus reducing sales costs and delivering fatter savings to consumers.
We're slowly seeing more DTC plays emerge. HSBC has been at the forefront in Canada. It eliminated commissioned sales reps and brokers and now uses salaried advisers. The resulting cost savings, a hefty investment in online marketing and its strategy to cross-sell other financial products, enable HSBC to significantly undercut the big banks. Its 1.99 per cent variable rate, for example, is the lowest conventional rate in the country.
The Internet is "our best opportunity for [consumer] outreach and clearly it works," says Paul Mullins, vice-president and head of customer experience at HSBC. The bank's below-market rates have spread virally online, and "this is bringing in customers … that might not otherwise have come across our doors."
HSBC now has a "digital first" strategy, Mr. Mullins adds. It's piloting things such as electronic signing, advice via live video and a new "direct" online channel that processes mortgages with less reliance on traditional bankers.
The end game
The next big thing in mortgages is robo-advisers. These include artificially intelligent chatbots that not only answer mortgage questions, but take your responses and recommend suitable mortgages. Lenders can program robo-advisers to deliver far more information, more accurately and faster than any mortgage banker or broker ever could.
It almost raises the question: Will robo-advisers some day surpass humans for delivering one-on-one mortgage advice?
"I can see it happening," Mr. Mullins says, but "there's still a long way to go before people get that confidence level."
So while it won't happen this year or next, a decade from now walking into a bank branch for a mortgage could be a nostalgic memory for most. The titans of the mortgage business won't necessarily be those with Bay Street towers and hundreds of branches, they'll be those who appear atop Google when people search for "mortgage calculators" or "lowest mortgage rates."
Complex financing – such as loans for credit-challenged borrowers, those with non-traditional income or multiple rental properties – will remain dominated by brokers and bankers for far longer, but those are the minority of mortgages. For the rest of us, mortgages are about to get cheaper, faster and more human-less, online.