Mortgage rates hit their lowest levels ever in March 2020, and the immediate response was a record number of mortgage applications. Any conscientious lender, broker or real estate agent wants to get the best possible deal for clients, but what does that look like in a time of historically low interest rates?
There’s little room left to differentiate based on actual loan rates, so for now the “race to the bottom” is on hold. Instead you’ll need to be creative in how you approach your prospective clients, and offer them value in other ways.
With Record Low Interest Rates, Go Fixed-Term
For decades, prospective home buyers on a budget have leaned toward variable-rate mortgages over fixed-rate. The logic was that a) variable mortgages offered lower rates and that b) in the event of a substantial drop you could convert to a fixed-rate and lock in the savings.
That logic turns upside-down in a very low-rate scenario like the one we’re seeing currently, with only a very modest delta between variable- and fixed-rate mortgages. More importantly, when rates are already at rock-bottom there’s no direction they can vary except upward. Selling your prospects on the value of a fixed-rate mortgage, to take advantage of the current rates, is a clear benefit to them.
To your lenders, position it as a way to attract some of this wave of new business while also generating slightly higher returns than the market would otherwise offer.
Get Creative With Down Payments
A lot of younger and higher-risk borrowers, especially millennials with their student debt and precarious employment situations, have assumed they’d never be able to own a house. These exceptionally low mortgage rates open the door to home ownership for people who might not have otherwise been able to manage the payments, creating a whole new class of potential home buyers.
The stumbling block, of course, is managing to scrape together a down payment. There are plenty of well-established workarounds for this problem, and — with non-bank lenders taking an increasing piece of the pie — even the banks and credit unions may be more willing than usual to show some flexibility. Helping long-shot buyers get a deal, while rates are this low, is a great deal in and of itself.
Consider Shortening Term
Buyers contemplating their mortgage options tend to look mostly at two factors: the monthly payment they can afford and the highest-priced homes they can consider based on that payment. With the current low interest rates, it might make sense for them to look at a third factor: term.
Instead of committing to a larger-than-necessary purchase, encourage your prospects to look at buying enough houses and then using any remaining “flex” in their budget to shorten the term of their mortgage. This drives up the payment, but it means they’ll own their home sooner, build equity faster and save thousands on their overall purchase.
It’s also prudent in the longer haul, because if rates go back up they won’t struggle with an oversized home and mortgage. Instead, if need be, they can simply refinance and push back their amortization period, staying in their home but reducing their payment.
Mine Your Client Base
Few things build customer loyalty like getting a phone call or email offering to reduce their monthly payment. If you’ve been in business for a while, your client files probably contain a lot of people with mortgages at well above current rates.
For them, the “best deal” would be a refinance that cuts their payment, shortens their term, or both. The spike in refinance applications shows people are interested, so if they’re not calling you, you should be calling them. Otherwise, they might be phoning someone else. Don’t just wing it, though, do the math. Know how much they’d need to save, after closing costs, to make it worth their while.
Crank Up Their Credit Score
The biggest single thing you can do for your borrowers may be helping them maximize their credit score. Everything else flows from that: With a higher score you’ll be able to help them get a larger loan, a more favorable rate or better terms. Inventory is low in many markets, so helping your borrowers improve their score may be the only way they’ll manage to wrangle a home of their own in a competitive market.
It’s especially crucial for millennials and other younger buyers whose debt ratios might represent a challenge. It’s important to qualify them if you can, though, while these once-in-a-lifetime low interest rates are available. Missing out would be as heartbreaking, in its way, as missing those massively high early 80s rates was for potential investors.
Maximize Lending Potential With ScoreMaster
The most effective way to generate improved scores for your borrowers is through ScoreMaster. It’s a tool with a simple but powerful premise: Most consumers don’t get the maximum benefit from their existing financial activities, simply because they don’t understand how credit scoring works. Having ScoreMaster guide them to do the right things, at the right time, and in the right order can have a genuinely life-changing impact. In actual testing ScoreMaster users have increased their scores by an average of 61 points, and often more, and it can happen in as little as 20 days.
Introduce it to your potential borrowers at the very first meeting, as a collaborative tool to help them earn the house they deserve. Chart out how much of a difference 61 points could make in the mortgages they’re eligible for, and – just as importantly, in times when inventory is tight – how it puts them in a position to consider a wider range of available houses.
Collaborating with your borrowers on this financial plan is a key relationship-builder, and it makes you an active part of their plan for homeownership. After they’ve signed up (it only takes a minute or so) they can share their plan progress with you simply by adding your email address.
Contact us today to request a demonstration, and see how ScoreMaster can help you build loyalty and close more loans.
*Legal Disclaimer – ScoreMaster is a patent-pending educational feature simulating credit utilization’s effect on credit scores via payments or spending. Your results may vary and are not guaranteed.