If you’re taking advantage of the services from a mortgage broker during your home purchase or refinance, then you should be aware how much they’re being paid. While this is probably not at the top of your priority list of things to find out, it is important, because it can make the difference in how much you end up paying for your new loan.
The first thing to understand about mortgage brokers is why they get paid, and in order to do that, you have to understand their job.
What a Mortgage Broker Does, and Why You Should Hire One
Mortgage brokers are the middle men. Standing between the lender and you, the job of the mortgage broker is to work with the lender to get you financing at the lowest rate possible. At this point, you may wonder why you would need a mortgage broker. Couldn’t you do that work yourself or use your bank?
Put simply, a mortgage broker represents your interests in the refinancing process. The bank, unfortunately, only represents its own interests. Another benefit to having a mortgage broker is the fact that they can represent hundreds of different lenders, giving you the best possible chance refinancing at the lowest rates.
The best part of working with a mortgage broker is that you don’t pay them unless they close your loan. And when you do pay a broker, you don’t have to worry about being taken advantage of, thanks to state caps which are in place to prevent this. As well, a mortgage broker must, by law, disclose any and all fees to the borrower.
How Mortgage Brokers Get Paid
Among the ways mortgage brokers used to be paid include the YSP and mortgage origination points. The YSP, or Yield Spread Premium was a fee that the lender paid to the broker. Also known as a POC or Paid Outside of Closing Fee, the YSP was actually a commission to the broker. Although the YSP did reduce the borrower’s out-of-pocket fees, it left much room for brokers to bump mortgage rates and steer consumers to products which would net higher broker commissions, and so was banned as of April 1, 2011.
The origination fee you see on your closing documents is another way your mortgage broker is paid. Every point you pay on your new loan is equal to one percent of your mortgage amount. The origination fee should not be any more than one percent. However, what you pay will depend on the loan’s difficulty level. For example, the origination fee on a conforming loan will be less than a subprime loan.
What Affects Your Charges
Generally, the more complicated your loan is, the more you are likely to be charged. This is because trickier mortgages take longer to close, due to the fact that there’s more legwork and paperwork involved.
Another thing that can affect your charges is if you choose a retail loan officer instead of a mortgage broker. Unlike a broker, retail loan officers are not required to disclose their commissions to you, which means that you will never know how much they actually made from your business, or how much you ended up paying them for their services.
The Wholesale Debate
There are many stories about borrowers being bilked out of thousands of dollars by brokers who have boosted interest rates to make more money on commissions. As a result, much discussion about wholesale mortgage rates has been raised. Ultimately, the decision about which mortgage type is best for will be your own.
If you have done your homework and have chosen a mortgage broker with a solid history of satisfied clients, then you are more likely to not only get your refinance at a great rate, but with a professional who knows the industry inside and out.
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