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How do mortgage brokers make money?Question:How do mortgage brokers make money? I am about to close on a property in the north houston suburbs and am interested to know how the mortgage broker I am using is making money. Read the Answers | Post Your Own Answer Ask Your Own Question...
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 | Mortgage Brokers, unlike loan officers at a bank, earn their salary by the commission system. Each company handles the commissions differently. It may be a straight percentage of the loan is given to them, but there may also be increases in the percentage or an extra dollar amount if they sell you certain products. Part of the subprime credit crisis has been due to a group of brokers pushing the sales of adjustable rate mortgages (ARMS), because they would gain a higher commission. This method of payment does not cause the price to go up, so loans from brokers can be the same as loans from banks in the aspect of cost. |
 | how do loan officers make money then? |
| A loan officer is on salary from a specific lender, and he will offer you the products that he has available from that lender. |
| Your answer is way off. I have been both. That is not the best way to expain YSB and A Loan Officer in a Bank generally makes a commission based on each loan's profitability. |
 | To put it quite simply, mortgage companies make money in three different ways. 1. Origination Fees (In the front) These costs can vary but as a rule of thumb they are typically around the 1% of your loan amount. These are upfront costs that the borrower has to pay out of pocket. 2. Yield Spread Premiums A yield spread premium is a certain percentage of the loan amount that the lender pays to the mortgage company for selling you a higher rate. For instance: If the rate is 6% there is no yield spread premium. If the rate is 6.75% the lender will pay the mortgage company 0.5% of the loan amount. If the rate is 5.5% the borrower has to pay discount points to bring the rate down. Yield spread premiums are not paid upfront, but they cost the borrower in the long run via the higher rate. Typically, if you see a commercial for "no closing cost" loans, they are utilizing the yield spread premium to get compensated. 3. Processing and Administrative Fees Many mortgage companies will charge processing and administrative fees to increase their return from a particular loan. Pay close attention to these fees when you are comparing estimates. When you are shopping for a mortgage you have to keep in mind that the mortgage professional has to make a living as well. So you have to balance the loan based on your most important needs. For instance, if you don't have much money to pay much out of pocket, you may choose a loan with a higher rate but with a lower origination fee. Or if you are rate sensitive, you can pay a reasonable origination fee and get the loan at a par rate (without the rate premium of the Yield Spread). I hope this helps |
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