Online shopping …. Stocks, Vacations and Mortgages. What’s the difference?

Is choosing a mortgage as easy as booking a trip or trading a stock?   Let’s find out! 

Sure, you can book a flight online or buy a stock through the web.  But, can you really choose the right mortgage product on your own?  Can you really find the absolutely lowest cost mortgage financing option?  I’ll bet some consumers can. I’ll also bet the vast majority cannot.  There’s a steady stream of horror stories, on this news site and others, that show just how costly and financially dangerous it is to be in the wrong mortgage product, with the wrong lender.

I’ve shared dozens of those experiences on this site.  Consumers who were directed into the wrong mortgage by their Banker or by some web site claiming to offer ‘the lowest rate’.  I empathize with these consumers as I believe they were just trying to save some money but instead ended up paying far more than they had to.

We can find it all online, but can you do it all yourself?

The big trend over the past 15 years is to move all business online.  Virtually anything can be found and bought through the internet.  eBay, Kijiji, Amazon, etc. Remember when eBay made headlines some years back when they had a 747 airplane for sale?  That was incredible.  Ok, so you can find almost anything for sale online.  Great! Now let’s bring it down to more ‘everyday transactions.’

Yes, you can buy a fridge, tv, shoes, books, etc., but these are ‘everyday’ items.  How often do you get a mortgage?  Even if you have multiple properties, you probably still only look at mortgages once or twice a year.  Does that make you an expert?  Of course not.  And remember, choosing the wrong mortgage can cost you thousands for many years to come.  Choosing a mortgage based just on the rate is a trap that has caught tens of thousands of consumers off-guard… The BANKS love you for it.

History of online selling… It started in the ’90s 

I remember when Banks started moving everything online in the ’90s.  Paying bills, accessing your bank account balances was the start.  Then we were able to buy stocks, get insurance quotes online. Next was booking flights or vacations online.  They say it killed the Travel Agency business but that’s not completely accurate, there are still hundreds of travel agencies with offices or virtual offices that offer advice, recommendations and personalized service with no extra cost..more on this later.

What about mortgage rate shopping sites?

Mortgage rate shopping sites promised to find you the lowest rate available via their online service.  They compare broker rates against broker rates.  These sites started to get a lot of web traffic in the late 2000s.  Sure, we all want the lowest rate, right?  Or, do we want to pay the least amount of money to own our homes?  Being in the right product is cheaper than finding the lowest advertised rate in almost all cases.

Just ask those consumers that are dealing with inflated prepayment penalties of 10, 15, 18 months worth of interest.  Penalties costing them $20,000, $30,000 and $40,000 (all the BIG FIVE BANKS use an inflated prepayment penalty formula).  Or consumers that were directed into a 5 yr fixed rate mortgage because of supposed fears of rates going up only to see rates actually went down (Nov 2008 and all of 2009 was a great example of this).  Or consumers that can’t pay out their mortgage because the BANK inserted a clause stating they must sell their home before they pay it out (by the way, one of the BIG FIVE BANKS has this clause in one of their popular product offerings).

An FYI, some of these rate shopping sites decided it could be lucrative to own a Mortgage Brokerage firm, so they now compare rates of a handful of other Mortgage Brokers AND list their OWN Mortgage Brokerage firm’s rates.  Can they truly remain unbiased?  Does anyone see a potential conflict of interest?? Buyer beware, I guess. 

When was the last time you spent $500,000 on a flight, or a stock purchase?

For some reason, consumers put stock trades, booking flights and mortgage shopping in the same category.  Consumers want and believe they can do it all on their own. While I applaud the independence, trying to become an expert in all fields can be an expensive lesson.  You’ve heard the saying… ‘jack of all trades, master of none?’.  The truth is, Mortgages have changed over the past 15 years.  And they continue to evolve as the government introduces more mortgage rules.

Who is taking the time to read these details?  I’ll bet the average consumer isn’t looking out for this.  We’ve seen the BIG FIVE BANKS exposed on TV, where even the branch staff are either unaware of the changes or can’t discuss them intelligently.  Remember the CBC Marketplace exposé regarding collateral mortgages?  This was an eye-opener for Canadians… you should check this out.

Banks and other financial institutions are suppliers of money.  They will always try to maximize profits and shareholder returns.  I’ve used this example before… If you walk into a Chevy dealership and ask who has the best car, what do expect them to say?

By the way, Mortgage Brokers provide unbiased, market neutral advice and charge NO FEES for qualified applicants. They are also licensed and regulated under the Provincial Ministry of Finance.  No one else can make this claim. Not BANK MORTGAGE SPECIALISTS… remember that when seeking out advice.

Does anybody use a Travel Agent, Stock Broker, or Insurance Broker? 

I keep seeing comparisons of different industries.  Buying stocks, booking flights or hotels, car insurance, life insurance, and yes, even mortgages.  Somehow, each of these transactions can be done just as easily as buying a computer or book. It can all be done with the push of a button.  I’m challenging that myth.. yes, I think it’s a bit of a myth.

Getting an insurance quote for a life policy involves speaking with someone.  Sure, you can get some rough prices, but when was the last time you actually went through an entire online quote process and didn’t have to speak with anyone?  You have to speak with a licensed insurance advisor in order to get a ‘needs analysis’ done.  Only then, can you choose the right product?

How about buying stocks?  You can buy and sell stocks online, that’s true.  But I’ve never really understood this mentality.  Read any investment strategy manual or speak with any Investment Guru and you will see that buying any stock or mutual fund should be for the long term.  Only seasoned professionals and investors with money to burn should be playing with stocks for quick buys and sells.

Yes, you can do it online, but how many of us are really making trades every day?  And how many are making a profit? (Funny thing, as I’m writing this, I just got an offer from TD to open an account and they will give me 200 free trades…  200 free trades! How long would it take me to make 200 trades? Five years? More?  Are people really trading stocks that often?  Wow! We used to call that gambling.)

Travel Agents,  that long lost industry, well, not really. Check out this article from the Globe and Mail. The internet hasn’t killed this industry. 

Tell me if this sounds familiar…

I recently booked a trip for my family.  I started searching for vacation spots online and then narrowed the choice to a top 5 list.  Then we started pricing things out online.  Researching different flights, airlines, hotels and dates to see if we could save money.  We looked up ratings of hotels, airlines, etc.. Some hotels had recent renovations.  Some were under renovations and should be avoided.  We must have spent at least 30 to 40 hours researching this stuff.  Seriously, and I’d much rather be doing other things than sitting in front of my computer!

The more info I had, the more confusing it was.  Was that hotel really a 5 star or a 4 star? Did that country have any issues recently?  What about local government, elections, safety, or crime? Is the water safe? I could go on but the fact is I didn’t know what to believe.

Finally, I went to a travel agency in our local mall.  I spoke with the agent. She gave us a lot of info.  She asked us questions!  She did a needs analysis, similar to what I do when speaking with a client.  Then she came back to us a day later with her top 3 options.  We compared her price to the online site prices, just to make sure we were in the same price range.   Sure enough, the travel agent’s prices were competitive.  Actually better than what I found online.  Imagine that!

Most consumers would prefer not to spend a few dozen hours going through all the online sites and still not know if they made a good choice. Just do a Google search on ‘travel agents’ and you’ll see there are several storefront locations near you.  They aren’t in business because nobody uses them!

Back to Mortgages and doing it yourself…

Trying to filter through all the hundreds of available mortgage products and terms isn’t for the amateur.   Make a mistake, and it’s not just a few dollars, it’s more likely to cost you a few thousand!  The average mortgage is well over $300,000.  You do need to be knowledgeable to make an informed decision.  And the internet can be a great source of info, but making a final decision requires Expert advice.

In Canada, we have a unique service that is FREE to most consumers.   Mortgage Brokers do not charge fees to qualified applicants.  They work similarly to Insurance Brokers.  Mortgage Brokers will listen to your needs, and match this to the best mortgage product for you.  The shopping is already done by the broker.  You just have to sit back and relax.

Choosing a mortgage without professional help is foolish and unnecessary.  And yes, I’m a Mortgage Broker.  I’m proud of the services and advice I provide to my readers and clients.

Your best interest is my only interest.    Like this article?  Share with a friend.   I reply to all questions and I welcome your comments.

Steve Garganis 416 224 0114 steve@mortgagenow.ca