Purchasing a home is a huge milestone in life and one that often comes with a fair amount of stress. There are so many things to consider, from finding the perfect location to negotiating a fair price. And then there’s the mortgage. Securing financing can be a daunting task, but working with a mortgage broker can help make the process go more smoothly. Mortgage brokers offer services at a fee, but is it really costly to use their services? Let’s dive deep into the details of an average mortgage broker commission and its key types.
What Do Mortgage Brokers Do?
A mortgage broker is an expert in helping people obtain loans to purchase a property. Mortgage brokers work with banks and lenders to find the best loan products for their clients. They also guide borrowers throughout the loan process, from application to closing. Working with a mortgage broker can be beneficial when purchasing a home for several reasons:
- Mortgage brokers have access to a wide range of lenders, which means they can help to find the best possible interest rate.
- They can assist with the paperwork and negotiate on your behalf.
- Brokers are experienced in the entire home-buying process. They will guide you through the entire process, from finding an appropriate property to negotiating terms with the seller.
- In addition, mortgage brokers can provide valuable advice on some financial matters, such as insurance and taxes.
As far as you can see, working with a mortgage broker can help purchase your dream home fast and stress-free.
Mortgage Broker Fee Explained
Mortgage brokers can save you a lot of time and effort. But they don’t work for free. Here’s everything you need to know about the two main types of mortgage broker fees: lender-paid compensation and borrower-paid compensation.
Mortgage brokers typically receive lender-paid compensation through a commission on the originated loan and other fees associated with developing a loan. Lender-paid fees vary significantly from broker to broker. They can be assessed per loan basis or an overall percentage of the mortgage broker’s business with the lender. In some cases, lender-paid compensation is applicable to reimburse the mortgage broker for expenses incurred with originating a loan, such as travel costs and fees associated with obtaining pre-approval from the lender.
There is also additional mortgage compensation called Yield Spread Premium (YSP). And it’s something that you should be aware of because it can increase the cost of your loan. Here’s how it works: let’s say that you qualify for a loan with an interest rate of 4%, but the broker sells you a loan with an interest rate of 5%. The difference between those two rates – 1% – is the Yield Spread Premium. And it’s money that goes straight into the pocket of the broker. So, if you’re shopping for a mortgage, be sure to ask about Yield Spread Premiums. And if you’re offered a loan with an interest rate that seems too high, it may be because the broker is pocketing the Yield Spread Premium.
Advantage: This fee doesn’t increase the cost of your loan.
Disadvantage: Sometimes it may give your broker an incentive to steer you towards lenders who pay higher fees, rather than those who offer the best rates and terms.
At LBC Mortgage, we pride ourselves on providing the best mortgage rates that cost nothing to borrowers. That’s right, nothing! And because we know that finding the right mortgage can be a bit overwhelming, we offer free consultations to help you find the best loan for your needs.
Borrower-paid compensation, on the other hand, is paid directly by the borrower. This type of fee is typically calculated as a percentage of the loan amount, and it’s usually paid at closing. Such fees can also be referred to as “points” or “origination points”.
One point is equivalent to 1% of the loan amount. By paying points, the borrower is essentially prepaying interest on the loan, and, as a result, reducing the amount to be paid for the loan. Though points may result in lower interest rates, they can also increase the total cost of the loan. So, make sure to talk to your mortgage broker to avoid hidden fees.
Although a borrower is responsible for paying taxes on mortgage compensation and any other fees associated with the loan, you should understand, that borrower-paid compensation is negotiable and can be used as a bargaining tool when shopping for a mortgage.
Advantage: It gives the broker an incentive to find you the best possible loan.
Disadvantage: It can add to the overall cost of your loan.
So which type of mortgage broker fee is better? It depends on your specific situation.
How to Find a Mortgage Broker?
With so many mortgage brokers out there, how do you choose the right one? Here are a few tips to help point you in the right direction.
First, ask around. Chances are, someone you know has used a mortgage broker before and can recommend a good one. If not, turn to the internet – but read reviews carefully, as anyone can post anything online.
Next, interview several mortgage brokers to find the one that meets your expectations. Ask about their experience, their lending relationships, and what type of loans they specialize in. Also, make sure to ask about fees – both up-front and ongoing – so there are no surprises down the road. Here are some of the questions to consider:
- What is their experience? You want to make sure they know what they’re doing and have a good track record.
- What do they charge? Mortgage brokers typically charge a percentage of the loan amount, so you’ll want to make sure you’re getting a good deal.
- What is their process? This will help you understand how they work and what to expect. Finally, ask if they have any recommendations for lenders.
This can be a great way to get some good options and compare rates.
Finally, take your time making a decision. This is a big financial decision, so it’s important to be comfortable with both the process and the person you’re working with. After all, you’ll be trusting them with helping you achieve your homeownership dreams.
A mortgage broker can help make sure you get the best deal on your home loan, so you can live your life to the fullest – without breaking the bank. A mortgage broker commission is an important fee when buying a home. Though it can help you save money on the cost of the loan and improve your chances of getting approved for a loan, this fee can also add to the loan amount. So, make sure to discuss all the fees with your mortgage company before making a decision to avoid unexpected “surprises”.