Sell the Payment, Not the Rate

Amidst the current refi boom, competition abounds. Many mortgage providers are offering sub-par, discounted rates to their current customers if they choose to refinance within that company. Homeowners are being bombarded with news about interest rates. Will they continue to fall? Will they return to previous levels? The consumer becomes obsessed with rates, and rates alone. With prospective clients being so rate conscious, how can you compete? Sell the payment, not the rate.

A recent client provided me with a perfect opportunity to put this mantra to the test. This client, we’ll call her Kathy, was referred to me by another client who warned me that Kathy may not be the savviest consumer when it comes to mortgages. Kathy came into my office to meet with me after I had run her credit and processed a pre-qualification. I had outlined a detailed plan for her to pay off her current mortgage and all of her credit cards, which would save her a total of $250 a month.

During our 2 hour meeting, Kathy also expressed that she wanted to take out $3000 in cash. I recalculated the plan and showed her the results on the spot. Still timid and unsure, Kathy asked if she could take the weekend to think it over and talk with some trusted friends and family. When Monday came around, there was no word from Kathy. While talking with the client who first referred Kathy, he told me that Kathy had called her current lender’s refi hotline and had locked in with them!

It took me until that Wednesday to finally track Kathy down and see what was going on. She told me that her current provider had offered a rate 0.5% lower than mine and asked if I could beat it. Right away, I asked if she could fax me the good faith estimate they had provided because I wanted to make sure she was getting an accurate and truthful offer. Not surprisingly, Kathy’s current provider had not given her a GFE, or any other documentation.

Then, when she told me that the offer was only for a rate-term refinance, I knew I could win this client back. Having spent so much time working with Kathy and reviewing her credit profile, I was quickly able to outline a new plan for her, a plan that would now use the competition’s offer as a counterpoint to mine.

Kathy was only focusing on her rate and how that affected her mortgage payment, wearing the blinders that so many consumers wear. When I finished the new outline for the plan, even I was surprised. While Kathy’s current provider’s offer substantially lowered her mortgage payment, it did not address her additional credit card debt. After rolling in all of Kathy’s credit cards, as well as her closing costs and cash out, I determined that my plan would save her an additional $100 a month over her provider’s offer, even though my rate and loan amount were higher!

Some clients may claim that they are concerned with the interest rate because they will end up paying more over the life of the loan if they have a higher rate. While this is true, how many homeowners stay in the same home for 30 years? Studies show that most people move an average of every 7 years. How many times might they refinance within those 7 years. Within 30 years? To the typical homeowner, a refinance is a means by which to take advantage of favorable market conditions on a relatively short term timeframe. A fraction of a point difference in rate is worth only tens of dollars, while changing the structure of the loan can affect a client’s monthly debt by hundreds.

In today’s market, the average consumer is enticed by rates, but it is our job as mortgage professionals to help the client view and understand the bigger picture. If you can’t beat the competition’s rates, provide better service, provide a more detailed, more accurate good faith estimate. Accentuate your strengths. Why should a client choose you? Make your market presence undeniable. Prove that the service you provide is unmatched.

Sell the payment, not the rate. Become a “trusted advisor” to your clients. Take the time to explain the overall financial benefit to them. Overcome the allure of rock bottom rates by convincing your borrowers that the rate isn’t everything. It is up to loan originators to counsel borrowers and steer them away from the focus on rates. Sell the payment, not the rate.

Written by Chad C Moore, VA Home Loan Specialist and VP of Commercial Lending for The Mortgage Market of Delaware.