August 03, 2014
Banks, like mortgage brokers, only profit when they sell the loan.
However, although mortgage brokers see banks as their competition, banks don't actually see mortgage brokers as competition. Banks don't compete against mortgage brokers because mortgage brokers are just another medium to give the loans to these lenders. Banks only see other lenders as competition. So to win you over, banks are targeting to compete against other lenders.
Just like a car dealer, the initial price is not their best price. Banks do have limit and they won't reveal it unless if you make an effort to talk to them personally. All banks seem to have some sort of unspoken agreement to not compete against each other online. Thus, online speaking, all banks seem to have similar interest rates which is too high to consider. However, if you meet with the in person, they will then negotiate better rates. You will have to meet with several lenders to get an understanding as to what the best rates you can get. Don't just take the first lender you see.
Large prepayments don't really hurt the banks. It only prevents them from making more money from the interest. On average, you should be able to get 20% for the prepayment, sometimes 25%. Do not settle for their initial offer which is usually 15%.
As stated earlier, the banks posted rate is not their best rate. They will vary the rate depending on how much fees there is to cover up front. So once when they know your situation, they will than change the rate depending on these fees. Banks get discount on these fees, but they are still not free. It will be hidden from within the mortgage interest. What the personal banking officer is looking for is a reaction from you. Whether you are concerned about these fees or not. If you are, they simply hide it by raising the mortgage interest. For your own interest, you should perform the calculation to decide whether to aim for lower interest rate or lower mortgage approval cost.
Happy Mortgage Hunting!
P.S. Have a question? Post it below....