A mortgage broker is a licensed professional whose business is to give advice and arrange real estate financing between a mortgage lender and a mortgage borrower. The broker is not an employee of the lender but rather an intermediary between the lender and the borrower. A broker deals with all the legal factors such as gathering documents, pulling one’s credit history, verifying the income and applying for suitable loans with the lowest rates on the borrower’s behalf. As soon as that is settled, the mortgage broker goes ahead and works together with the bank’s underwriting department, the closing agent who usually is the title company and the real estate agent to keep the transaction run smoothly at the closing.
With every quality service offered, there is always a fee lingering behind it. For a mortgage broker, like any other business person typically charges a percentage commission referred to a “loan origination fee” amounting to 1% of the loan amount. This amount is paid by the borrower at the closing. Besides the percentage commission, the fee can be paid in a fixed amount called a fixed fee, charged per hour using the hourly rate payment format or as a commission from the lender leaving the borrower fee free. A borrower can avoid paying the fees all at once by adding some of the fees to the mortgage. However, one needs to be careful when making this decision as one will have to pay interest for both the fees and the original debt.
Mortgage lenders pay commission to mortgage brokers based on factors such as the Loan to Value Ratio, the loan amount and the quality of the overall loans written. These commissions are based on a percentage of the loan amount and Loan to Value Ratio and are only given out when the borrower receives the loan. Generally, there is the upfront commission which is the largest component amount and is given to the broker once the loan is disbursed and the mortgage funds are offered to the borrower. Then there is the trail commission received by the broker every month for the loan lifetime. This commission is set at 0.15% per annum based on the remaining mortgage amount each year or may increase as time goes by.