When I got started in the mortgage business, I knew nothing about private mortgages. I, like most new agents, thought the whole business was about one thing – finding my customers the lowest rate. It took me a couple of years to realize that by and large all mortgage brokers have access to the same rates (give or take 5 or 10 basis points) which equates to $50-$100 a year per $100,000 borrowed. Was I really going to spend all my time trying to convince people to do business with me just to save that much?
They say 90% of people shop for value, 10% shop for price. The 10% are cheap, and there’s no changing that but the 90% are where any business ought to focus its attention and we’re no different. Now, that’s not to say that borrowers aren’t looking for the cheapest price, because they certainly are. But is there really a cheap private mortgage out there? Let’s be honest, there’s no such thing – so when we built Switch Private Mortgages, we built it with one thing in mind – if we can’t make private mortgages significantly cheaper than other lenders, how can we make them easier to get?
The cheapest private mortgage we offer is a first mortgage at 6.00% with a 2.00% lender fee. It’s possible you’ll find slightly cheaper money somewhere else from time to time, but we’re confident that an 8.00% total cost of borrowing is pretty competitive for a first mortgage that just missed out on institutional money. So, how do we make it easier to get? It’s about case-by-case adjudication, flexibility with conditions, and common sense. We’re not a bank, so we don’t pretend to be one.
We created a scoring system called RATEScore. The system scores an application in minutes across 15 risk categories. Borrowers can score up to 100 points in each category and if the total score is 900 or better the deal gets approved. Then, it’s priced according to its score. The higher the score, the lower the rate and fee. Simple.
Now the score is the score and that determines the pricing. The system has been calibrated so that the pricing is very competitive relative to the risks the borrower presents which are reflected by the score. What agents and borrowers sometimes forget is that we don’t make money unless we lend money so once we approve a loan, we have to price it properly in order to compete. Otherwise, we’re just wasting time and money looking at applications all day and making offers but never funding loans which would put us out of business pretty quick.
The magic is what happens next, and this is where Switch really separates itself from the pack.
Imagine we’ve looked at 10 applications and only 3 of them score high enough to get approved. And let’s say we make 3 offers and the pricing is competitive enough to be in line with other lenders quoting on the same deal.
If we’ve approved it, its because we like the collateral enough that in the worst-case scenario, we’re confident the property could be sold (by the borrower or under power of sale) for enough to pay back the loan plus interest, so we don’t make itdifficult for the borrower to satisfy conditions or make payments or pay the loan back. This is where so many private lenders make things difficult for no good reason.
If the borrower’s income is irregular, so be it – as long as they can demonstrate an ability to make the payments. If their credit is bruised but repairable, we look at it as an opportunity to be the solution. If the property is in a small marketplace it doesn’t mean the borrower cares about it any less, nor that it won’t sell in a reasonable period of time, so we don’t kill loans based on geography alone. If the borrower thinks they can pay back the loan in less than a year, we can make it easy for them to do that. And if there’s enough equity to build in a small reserve to make monthly payments more manageable, we can do that too. Our whole approach is to make it easier so if we can, we will.
We’re malleable, we don’t waste time, and we don’t put unnecessary obstacles in the way of getting loans funded. The whole idea of private mortgages is to build a bridge for the borrower that can help them stem the tide and keep their home while their circumstances are less than ideal. The right private mortgage can help someone buy the time they need to change those circumstance and replace the private money with cheaper institutional money quickly. That’s what it’s all about.
There’s no such thing as a cheap private mortgage, but at Switch we make them easier to get…on purpose. Try us and see for yourself.
