How Does Your Mortgage Broker Get Paid?

Have you decided to use a mortgage broker to secure financing for your next home purchase? While they offer an incredibly helpful service, you may be wondering how they get paid for the work that they do. After all, many people do not directly pay the mortgage broker for the work they do. Here is a breakdown of the two main ways a mortgage broker can get paid.

Commissions

A mortgage broker who agrees to get paid by each commission will get a percentage of your loan's amount as their compensation. This commission is paid for by the lender that you end up selecting, and the commission is based on the loan amount. A borrower that needs a bigger mortgage for a more expensive home will result in a higher commission for the broker. 

The advantage of using a commission-based payment system is that a mortgage broker will be really motivated to find a loan that works for their client. This means trying to get you a better interest rate to make the loan more attractive, or favorable terms that you are seeking from a mortgage. If you end up not using the mortgage broker and you go elsewhere, the broker is not going to get paid for the work that they did.

The downside of a flat fee system is that there may be a conflict of interest with the broker, since different financial institutions may have deals where they are offered a larger commission. Of course, you ultimately get to decide who you use for your mortgage, and may ultimately select the one that offers the best interest rate. 

Flat Fees 

A flat fee commission is just how it sounds, with the mortgage broker getting a flat fee for their services. However, that flat fee is typically paid for by the lender and removes any conflict of interest involved in the process. Since you're paying the broker the same amount of money regardless of which lender you select, they are working for you. In addition, the broker only gets paid if you buy the home and secure the mortgage.

The reason that flat fee commissions do not always work is that the borrower may feel like a flat fee is not worth it for the size of the loan they are getting. If they are buying a relatively small house, that flat fee can be a large part of the closing fees. For a very expensive home, a flat fee can be a small cost that doesn't matter too much.

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