How Are Mortgage Brokers Paid?
Updated - October 22, 2017
For many people, mortgage brokers are the bridge between them and a brand new home. About 1 in 3 Canadians are now using mortgage brokers, and that number will likely continue to rise in the near future.
Brokers can do a lot of things that banks can’t. They can seek out a wide variety of lenders, offer plans that are directly suited to their clients, do a large chunk of the paperwork, and provide an objective overview of mortgage plans out there.
But, exactly how are mortgage brokers paid? It’s rare to see a mortgage broker who charges excessive fees to sustain their firm, so what’s the deal?
Mortgage Brokers vs Lenders
Mortgage brokers have strong connections with most of the lenders in their network. They both have a vested interest in earning the trust of potential homeowners. In fact, mortgage brokers earn a bulk of their money from commissions from the lenders themselves.
The amount the broker receives is usually based on the length of the loan term negotiated with the client. Longer terms usually get the broker more money. In general, the amount usually comes out to around $80 for the broker per $10,000 in the client’s loan.
Mortgage brokers are also starting to use a new method called a “trailer fee.” These fees essentially give the broker a percentage of the loan each year for as long as the loan is ongoing. Usually they get paid around 0.15% of the mortgage for each year of its existence. This is a good way for brokers to earn income because it’s annual and consistent.
In any case, if you have ever asked yourself “how do mortgage brokers get paid?” then you now know. Of course, mortgage brokers do a lot more than just linking you up with a bank. They put in a lot of work and effort to get you the best deal on your mortgage.
Are There Mortgage Broker Fees?
Mortgage brokers can’t always count on the generosity of their lenders to get paid. While lenders are the most common source of income for mortgage brokers, that’s not always the case. So, who pays mortgage brokers in the rare cases when lenders don’t? There are usually three times when a mortgage broker charges fees.
- Commercial clients – Commercial mortgages take time and require a lot more work on the mortgage broker’s end. In many instances, commercial mortgage projects will never actually close, leaving the broker without any compensation.
- Private lenders – Banks and other lenders with whom a mortgage broker has ties will pay a commission more often than not. Broker fees are sometimes charged when private lenders do not pay a finder’s fee or commission. Private lenders are also commonly used for subprime or “bad credit” loans, which are riskier and come with higher interest rates.
- Small mortgages – Brokers may charge fees on loans that are particularly small (usually below $100,000). That’s because these mortgages take just as much time, but offer little in the way of compensation.
In some Provinces, it’s illegal for mortgage brokers to ask for fees up front on a residential loan of less than $200,000. If advance fees are charged for a loan amount of greater than $200,000, then the broker must repay those fees if no mortgage deal is worked out.
So, who pays mortgage brokers? A vast majority of the time, it’s lenders. Brokers are truly the middlemen between you and many lenders, and you shouldn’t have to worry about them raking you over the coals with fees. This genuinely makes the job of a mortgage broker more transparent because you know you’re not really paying their salary.
What you should do now
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