One of Canada’s top mortgage brokers explains why the majority of his clients end up owning multiple properties
Brock Frost is currently in the top 1% of all mortgage brokers in Canada for the 3rd year in a row. Sitting at number 10 nationwide at the time this article was written, Frost attributes his large volume of deals to his outside-of-the-box, strategic approach to mortgages.
Frost believes that there is a huge disconnect in regards to what the public knows about mortgage financing compared to what they ought to know. Most borrowers simply focus on interest rates when instead, they should be focusing on how each mortgage affects all aspects of their lives, including debt management, cash flow, future mortgages, borrowing capacity, personal risk tolerance and subsequent real estate purchases. Borrowing hundreds of thousands of dollars is a serious matter and all factors, not just the cheapest rate of the day, need to be considered.
Frost refers to this type of financing flaw as “transactional”. When you think transactionally, essentially, what you’re saying is that the mortgage you are obtaining has no bearing on any future financial decision in your life – and that is just foolish. Banks and mortgage brokers who fail to properly plan for their clients’ short and long-term goals are doing a complete disservice to the very people that they are supposed to protect.
In his own words, Frost stated, “Imagine buying a computer simply because of its price; imagine going to a restaurant and picking the cheapest item on the menu. Cheaper is rarely the better option. Why do people believe then that the cheapest mortgage rate is the only factor that needs to be considered? This is mind-boggling to me and falls simply on the lack of financial education that exists in our country today.”
When Frost works with a mortgage client, whether a first-time buyer or seasoned investor, he generally uses the same approach: he builds a long-term financial roadmap that he calls “The Mortgage Timeline”. Behind the scenes, Frost always thinks about the future. Regardless if his client has a strong financial ambition or not, each mortgage needs to be analyzed and approached with future plans and lifestyle in mind. As previously mentioned, a loan in the hundreds of thousands of dollars is going to affect you one way or another and whether you like it or not.
Below are some of the questions Frost asks himself while building a mortgage strategy for his clients:
- Is there a likelihood that the client will need to refinance or sell prior to the maturity date?
This is important due to the potential mortgage penalty the client could incur. Often the cheapest lenders have the highest penalties in addition to low-rate mortgages, known as “no frill loans”, having a variety of hidden fees as well.
- Which lender should be used now, and which lenders should be saved for future transactions?
Each lender has a maximum limit of properties that they will consider for each borrower. As such, choosing lenders in the proper order has significant strategic advantages for clients looking to build large portfolios. If you choose the wrong lender at the wrong time, a client will have difficulty expanding. It is much more strategic to choose a lender based on future transactions instead of bouncing from lender to lender because of the cheapest rate of the day. This is a very common mistake that costs investors hundreds of thousands, if not millions, of dollars over their careers.
- What is the client’s level of risk tolerance?
Mathematically and historically, variable rates have been the cheaper option for borrowers; however, certain clients simply cannot handle fluctuations in their payments. Money aside, borrower peace of mind is a huge consideration when choosing the right product for the client. Saving a few bucks per month is not worth the anxiety some clients endure because of market fluctuations. Fixed rates, in general, are better for clients with very low-risk appetites.
- Can we approach a lender that is likely to work long-term with the client?
Certain lenders value relationships more than others and some lenders are much more likely to make exceptions for existing clients when a file is complicated or on the verge of not qualifying. Incorporating other products into your plan such as lines of credits, TFSA’s, RRSP’s and credit cards, can help make your overall profile stronger with the lender and thus enhance future applications moving forward. It is imperative that this be done delicately because not all lenders value relationships and these lenders need to be used earlier in your career rather than later. In other words, if you begin accumulating additional products with a lender that doesn’t value you as a client, your actions will be counter-productive in regard to your future goals.
- What is the right product for the client?
Understanding your clients’ needs and goals will determine what product is most suitable for them. Not all mortgages are created equal because not all clients are created equal. What if someone planned to renovate their house in the short-term and then refinance once the value had increased? Here, a fixed-rate mortgage would not be suitable due to potential penalties whereas a home equity line of credit may be ideal. What if a client was expected to inherit or earn a large amount of money prior to the mortgage reaching maturity? A good option would be to choose a lender with the highest prepayment privileges possible, thus allowing them to pay off their loan penalty-free. There are countless scenarios where cheap rates come with inferior products that only end up costing the client more in the end.
By planning his mortgages strategically, Frost can properly prepare his clients for future loans and mortgages, future real estate acquisitions and their overall financial health in general.
For more information, Frost can be reached via his website at www.brockfrost.com