A common question that clients have is how does a mortgage broker get paid?  There is a very big misconceptions that mortgage brokers always charge a fee.  This is rarely the case.  There are instances where we do, but over 90% of the time we are paid directly from the lender.

Brokerage Fees & Compensation:

Mortgage brokers typically do not have to charge you any fees.  However, there are times when that may be necessary.  Fees are based on the application themselves.  We will illustrate them below:

1) Finders Fee:  This is the most typical way a mortgage professional gets paid.  A lender will generally pay a mortgage broker a percentage of the mortgage amount as a finders fee.  The amount of the fee can range from 0.5% to 1.5% with the average being about 1%.   For example if a client was to borrow $300,000.00 – A mortgage professional would likely receive 1% or $3,000.00 as their finders fee.

2). Lender Fee:  Some lenders charge their own fee on top of the mortgage.   These lenders usually specialize in borrowers who have bruised credit, or their applications require special exceptions.  These lenders will charge a fee of 1%-3% and pay the mortgage professional a portion of that fee (usually 50%).

3). Broker Fee:  Sometimes a mortgage broker will need to charge a fee if they are using a private lender or a financial institution that doesn’t have a finders fee agreement with the brokerage.   For example a major bank, credit union, mortgage investment corporation or private corporation.  These fees are set by the broker and agreed upon by the client.  Typically fees are between 1%-3% and have a minumum of usually $2,500.00.  If a broker/brokerage fee is charge, it will be fully disclosed upfront on the borrower disclosure.

4). Cash Back:  Many lenders have a cashback program for their clients.  Cashback is also a way that the mortgage professional can receive compensation in lieu of a lender fee or broker fee.  In this case, the lender will pay the broker 1% of the funded mortgage amount and increase the rate to the borrower by .2% – .3% depending upon their policy.   The increase in the interest rate is what compensates the broker and is paid over the term of the mortgage.  With this type of mortgage it is important to understand that the mortgage penalty

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