Before you make one of the biggest financial commitments of your life, it’s important to understand how mortgage providers- like your mortgage broker- are paid to ensure that your interests are always at the forefront. That’s why we’re revealing below how mortgage brokers are compensated. In most cases, it is free for you to use a broker, and you benefit greatly from using an expert whenever you need a new mortgage or to renew or refinance an existing one.
- Working with a mortgage broker is usually free for borrowers.
- Once your mortgage is funded, mortgage brokers receive a commission (finder’s fee) from the lender.
- Mortgage broker commissions vary by lender but are generally between 0.5% and 1.2% of your total mortgage amount.
How are mortgage brokers paid?
Mortgage brokers receive a commission (or finder’s fee) from the lender once your mortgage has been funded. This means that it is always in your Mortgage Broker’s best interest to keep their clients happy throughout the buying and mortgage process and beyond. Mortgage brokers are independent providers who work for you, not the bank or any other lender, and they have access to multiple lenders, including banks, credit unions, and trust companies.
More choice means that mortgage brokers are better able to negotiate a mortgage product and rate that best meets your specific needs. Mortgage brokers receive significant discounts for borrowers because they do all the work for the lender, instead of the lender having to pay the salary, commissions, and benefits of a sales employee.
How much do Mortgage Brokers make?
Mortgage Broker commissions vary by lender but are generally between 0.5% and 1.2% of your total mortgage amount. The exact percentage will also depend on the type of mortgage you choose and the length of your term. Since this commission is paid directly to the broker by the lender, you will not receive a bill. In many cases, a mortgage broker is also split with a brokerage. This split depends on the experience of the broker as well as what they have negotiated with the brokerage.
This means that the brokerage takes a cut at the top of the broker’s commission (usually 5-25%). If your mortgage amount is $600,000 and your broker receives a 1% commission, he will receive $6,000 (minus the fees and commission he owes to his brokerage). Most brokers opt to have lenders pay them an upfront commission once the mortgage closes. Brokers may also receive two other types of commissions:
- Trailer fees. Some lenders pay these to brokers over time as long as the borrower remains with that particular lender. This will normally be paid in exchange for a lower initial commission.
- Renewal fee. This is paid to the original broker each time a borrower renews their mortgage with a lender.
Be sure to work with your mortgage broker as the renewal date approaches to compare your current mortgage options over time. This can save you a lot of money.
Average Mortgage Broker Salary
As with any profession, earnings tend to increase with years of experience and time spent in the profession on an ongoing basis. Some mortgage brokers earn far more than the annual salary of doctors and lawyers. On average, however, Mortgage Brokers earn about $100,000 per year.
Can Mortgage Brokers save you money?
Yes, Mortgage Brokers receive significant discounts for borrowers because they do all the work for the lender, instead of the lender having to pay the salary, commissions, and benefits of a sales employee. Mortgage brokers receive a commission (or finder’s fee) from the lender once your mortgage has been funded. This means it is always in your Mortgage Broker’s best interest to keep their clients happy throughout the buying process and beyond.
But more important than the rate is the fact that mortgage brokers understand the ins and outs of many mortgage product lines because that’s what they do every day. They can help you save money throughout your life as a mortgage holder by suggesting accelerated payment cycles and other prepayment strategies that prevent you from taking out an inflexible mortgage to save money upfront but risk a penalty of thousands of dollars if you have to break your mortgage early.
A mortgage is a huge financial commitment, and it is important to have the peace of mind that comes with being able to rely on your broker whenever you need a new mortgage or to renew/refinance an existing one. Saving money with your mortgage goes far beyond saving on your interest rate. Your mortgage broker understands the features and payment plans that can save you more money over time beyond just a lower interest rate.
Sound off in the comments section below, and tell us what you want to read next and if you want to read more about mortgages.