Mortgage brokers do a lot of heavy lifting when it comes to calculations, filling in approval request forms and finding the best rates. They can’t work for free however so today we ask – How do they really make money?
A broker who is also an independent provider will have access to a few lending institutions such as banks, credit unions and even trust companies. Based on your specific requirements the broker will then make a selection as to which institution will fund your mortgage.
It is this selection that will enable the broker to get paid. How? Well – It is also known as a finders’ fee. The value of your mortgage will determine the amount which is paid as the broker’s commission or finder’s fee is actually a part of this commission. It is therefore important that they keep you, the client, happy throughout the home-buying and mortgage process and even beyond. As this would naturally mean more business to the broker.
Why use a broker? Well they also receive really deep discounts as they do all the heavy lifting for the lender as well.
Now everyone has to make sure that the client remains happy throughout the process. This also means that they will be following up to see that clients are making payments and that the client has remained with the lending institution. As long as the borrower stays with the specific lender. This fee will also act to keep the broker from recommending the borrower switch from one lender to another. Think of it as an ongoing incentive for the broker to keep the borrower with a particular lender.
This payment structure works where the original broker in the deal will get paid whenever the borrower renews their mortgage with the lender. This opens the option of the broker recommending that the borrower renew with the current institution. It also means that the broker can encourage the borrower to renew their mortgage with a new lender.
Part of the completion of a sale on your home is paying closing costs. In there as well can be built in a fee which goes to the broker for the borrower making it to the transition of loan from a lender to the borrower. Therefore the more clients that borrow money and make it to the end of the line of transitioning and sign-off is great for the broker.
In some instances, brokers have been known to charge a flat fee for their services. This has not been as popular an option since it can actually feel like a burden to the person looking to acquire the loan. Additionally, the amount charged is generally a flat rate as compared to the percentage which can be received on the commission from the size of the loan.
The mortgage market is quite competitive and highly regulated by organizations like the FSRA. Therefore it is in the best interest of the broker to offer the best solution to the borrower. One that can also be tailor-made to the specific needs of the borrower. This then means that the borrower becomes comfortable enough to then make the broker of their choice. The broker may then be the one to be recommended to family and friends as well.