MORTGAGE BROKER FEES
How does a mortgage broker work? That is a pretty common question and it is usually followed up by the question of mortgage broker fees.
Well I believe in being completely open and transparent about this – you should know exactly how it works so you can make a choice on what is best for you.
We also have a pretty neat little video about this but I’m going to be a lot more candid and open – you can check out the video at https://www.youtube.com/watch?v=yr-0wxBQPYQ
In the vast majority of cases, a mortgage broker will be paid a commission by the lender that you take the deal out with. The exception to this is in cases of bad credit or bankruptcy – where a mortgage is much more difficult to find and therefore there can be a ‘finder’s fee’ involved.
THE MAJORITY OF CASES
So, having said that, let’s talk about the majority of cases which is where the broker takes a fee from the lender. This opens up a whole new batch of questions: Do some lenders pay more? Do lenders have ‘volume quotas’ where you can make more money? Can a broker recommend one lender over another because that lender pays them more commission?
Well, the answer to all of these questions is yes. Yes, some lenders do pay more. Yes, some have volume bonuses. And yes, some brokers will recommend one lender over another because that lender pays more commission.
Like every profession out there, there are good, moral and ethical mortgage brokers and there are possibly some others out there who aren’t so much and will do unethical things (such as give you a worse deal so they can make more money).
HOW TO WEED OUT THE UNETHICAL BROKER
Firstly, my advice is to think about the mortgage broker you are choosing to work with and check to see if they are open and honest in their business.
But if you are suspicious of your mortgage broker, one way to weed them out is to ‘test’ them. You can do this by pretending you are interested in products that you are not really. For example, let’s say you originally discussed it with them and you decided on a variable mortgage. Well now tell them you changed your mind and you want a fixed mortgage deal.
A good mortgage broker should listen you and find the best deal for you based on what you’re looking for. So if the mortgage broker then either:
1. Offers you a fixed deal but with the exact same lender they were offering before and insist it’s the best or
2. Spends a great deal of time trying to convince you that you’re wrong and you should take their initial offer
Then these are signs that the mortgage broker is pushing a product on you because it suits them (for example, better commissions or a volume bonus) and not because it suits you.
BROKERS CAN GET YOU GREAT DEALS – PERIOD.
Ultimately there is no doubt in my mind that mortgage professionals can get you great deals and change your life financially. Even an unethical deal where a mortgage broker recommends one lender over another because they make more commission could turn out to be a better deal than you would have got by yourself!
A better way of thinking about it is to consider which is worse:
• A mortgage broker who pushes one lender on you because that lender pay the best commission
• A bank employee who only pushes that bank’s product on you and can’t even look anywhere else because they are paid by that bank!
At least in the first case you can still tell them to find you a different lender. That is, we, as mortgage professionals, work for you not the bank – therefore when you ask us to look at other lenders that should be what we do.
So I’ll repeat that unethical mortgage brokers are rare and I’ve never even met one. Not that they potentially don’t exist but bear this advice in mind and ensure you get the most value out of your mortgage broker as they can change your life.