A hot housing market makes people do things outside their comfort zone.
So a new do-it-yourself online mortgage operation called intelliMortgage should fit right in. The idea here is the same as using an online broker to choose your own investments. Do the work yourself and you pay less.
But a mortgage? IntelliMortgage has a super easy, no-cost online system for building in the features you want, but we're talking here about transactions involving amounts of $200,000 to $500,000 or more, depending on the city. Buyers in today's housing market may spend more than they wanted, and present offers without some or all of the usual safeguards. But borrow half a million dollars over the Internet?
IntelliMortgage co-founder Robert McLister answers by noting that there are about 4.8 million online brokerage accounts in Canada. "I have got to think that if someone is smart enough to pick an investment, they're smart enough to pick a mortgage, where there is a heck of a lot fewer variables."
Mr. McLister is a mortgage entrepreneur who recently introduced a mortgage rate comparison tool called RateSpy.com. He also founded the influential Canadian Mortgage Trends blog, and contributes a mortgage column to Globeinvestor.com. He says the idea behind IntelliMortgage is quite similar to the concept behind online brokerage firms.
Automation limits the need for human interaction, and that offers an opportunity to save clients money. To get a rate quote, you answer a few quick questions about your borrowing needs, and then indicate which features you'd like to have. The choice includes a discounted penalty if you break the mortgage, the ability to make double-up payments, online access to your account and the option of increasing the size of your mortgage without penalty.
IntelliMortgage then checks for the best rate from among banks, credit unions and wholesale lenders who don't deal directly with the public. If you decide to apply, you download the application documents, complete and sign them and then return electronically (Note: intelliMortgage can charge a $295 fee if you apply and then back out of the deal). Human assistance is available to clients through "mortgage concierges" who be contacted by phone or live chat.
The best rate displayed on a five-year fixed-rate $300,000 mortgage in the province of British Columbia on Wednesday was 2.97 per cent. Features included: A discount penalty, online account access and double-up payments.
IntelliMortgage said a lower rate might be possible if any lenders cut their rates, but there's no risk of paying more. It also guarantees its rates will be close to the cheapest on the market. At midweek, one of the big banks had a special five-year rate of 3.39 per cent, and a spot check of a few mortgage brokers found rates ranging from 2.94 per cent to 3.09 per cent. It's impossible to tell from these quotes which mortgage features are included at this price.
Figure on intelliMortgage getting you a very good rate, if not the country's lowest rate of the moment, without any negotiating or sales spin. What, you didn't know mortgage brokers are salespeople who get compensated with fees and commissions? They are, just like most investment advisers.
For one thing, brokers get a better payday on longer-term mortgages. There's also a potential conflict in the fact that some lenders offer modestly better compensation for selling their products than others. The best payday for the broker can mean the client doesn't get the lowest possible rate.
To further complicate things, there's something called the mortgage rate buydown to consider. That's where a broker gives up some compensation in a mortgage deal, thereby "buying down" the rate the customer pays.
IntelliMortgage is paid by lenders, but Mr. McLister said it's set up so that the firm makes the same amount of revenue on mortgages of all types and terms. "One of the main benefits of the do-it-yourself model is that there's no individual selling you anything and relying on getting paid for having done that," he said.
If nothing else, intelliMortgage is another online tool for home buyers and owners seeking a good mortgage rate. At best, it will do to mortgage agents and bank branch mortgage people what online brokers did to full-service brokers. That is, put some onus on them to provide advice and expertise that justifies any cost premiums.
As for getting outside your comfort zone with a DIY mortgage, consider this. In the kind of housing market we have in some cities, there's minimal opportunity to negotiate prices lower. Your only leverage to minimize your costs: getting the lowest possible mortgage rate.
Target audience: People who want the best rates and terms and don't need mortgage advice
How it works: Pick your term, find the lowest rate for a mortgage with the features you want and then submit an application
Approval period: 24 to 48 hours
Where available: B.C., Ontario, New Brunswick, Prince Edward Island, Newfoundland
Coming in 2014: Alberta, Manitoba, Saskatchewan
Comparison shopping: Submit your best mortgage quote and see whether IntelliMortgage can beat it
Innovative option: AmKiller, a feature that automatically boosts your mortgage payments by $1 to $20 or 1 to 5 per cent on a quarterly, semi-annual or annual basis; the result could slash years off your amortization.