Mortgage brokers have become a vehicle for wholesale lenders to shave costs in an evolving marketplace. The cost of operating an office including rent, utilities, office equipment & supplies, marketing, insurance, postage and salaries & benefits are borne by the Mortgage Broker. Because the lender is not forced to take on this additional expense, they pass the savings on to us in the form of Service Release Premiums. This is money the lender pays out for the right to procure the servicing of the loan (collection of the payments after the loan closes).
There are really three distinct ways that mortgage brokers may be compensated:
- The lender agrees to pay us a rebate based on the interest rate that you are charged. (This is called Yield Spread Premium).
- You agree to pay to pay us directly in the form of a broker fee, often referred to as an loan origination fee. This is frequently quoted at 1% of the loan amount and will generally get you a ¼% reduction in your rate.
- A combination of an origination fee and yield spread premium.
So in a nutshell, you can pay us, the lender can pay us or we can be paid by a combination of both. Which one of these options you choose is up to you, except in cases where a lender refuses to waive the origination fee, but that is rare.
Read more about Mortgage Broker Compensation.
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