How Does a Mortgage Broker Get Paid?
A Home Buying Article Contributed by Elizabeth Fox-Wise
Is the Mortgage Broker an Agent or an Independent Contractor?
The first thing that you will need to know about a mortgage broker to determine how he is getting paid for his service, is what capacity is he serving under. No matter what role he plays in the mortgage application process he is getting paid by the consumer seeking the mortgage. However, depending on how he runs his business, the consumer might not be the only one paying him.
If a mortgage broker is working as an agent for the home mortgage seeker, then he should be getting paid only by the mortgage consumer. Although, you can not assume this to always be the case unless you ask.
If the mortgage broker is working as an Independent Contractor, he is most likely getting paid by both the consumer and the lender for his role in facilitating the mortgage lending process.
As a Broker, he Has Access to Wholesale Mortgage Rates
A mortgage broker will typically maintain ongoing relationships with mortgage lenders. As a broker, the lenders will provide him with mortgages at wholesale prices. Like every other retailer, the mortgage broker takes the wholesale mortgage, adds his fees and commissions and markets it to the consumer at retail mortgage rates. Basically, the same mortgage rates that you would be able to get from a retail mortgage lender.
However, in addition to the mark up on the mortgage from wholesale to retail, compensation for the broker service is also often paid by the consumer. For the ease and convenience of using a mortgage broker, there is usually a price to pay. State and Federal laws regulate how high of a price you can be charged for mortgage broker fees. In general, it can not be more than 3% of the total mortgage.
How Consumer Pays the Mortgage Broker Fees
How many fees you pay and how these fees are paid will vary from one mortgage broker to the next. Therefore, it is important that you ask these questions of the mortgage broker you are considering working with. However, most of the time mortgage broker fees will be passed to the consumer either with a one time payment at the time of closing on the mortgage, adding the mortgage broker fees to the mortgage amount, or a customized combination of the two where some of the expense is paid immediately and the rest is added to the mortgage base.
Sometimes the mortgage broker will offer options where you can pay less fees and points, or maybe even no fees and points, in exchange for a higher interest rate on the home mortgage loan. The opposite is often an option as well; higher points and fees paid up front in exchange for a lower mortgage interest rate on the loan.
If the borrower chooses to pay lower fees and points and agrees to a higher interest rate, then the lender will pay the mortgage broker fee. In other words, the lender is willing to pay the broker fees for you now because the higher interest rate will ensure that he makes more money off of the mortgage during the life of the loan.
