Decision Tools
Traditional Mortgage Brokers
Mortgage brokers currently originate almost 70% of all mortgages. Their popularity is driven by some important advantages, but mortgage brokers have significant limitations.
Traditional Mortgage Brokers
- Conduct all legwork to find your mortgage and complete loan application for you.
- Contact multiple lenders on your behalf.
- Can usually close your loan quickly.
- Can only effectively shop a mortgage to a handful of lenders.
- Consumers are not always aware of which lender is providing the best rates.
- Fees are not always transparent or fully accounted for upfront.
FAQs: Traditional Mortgage Brokers
How do Mortgage Brokers make money?
Mortgage Brokers can make money in a few ways:
Loan Origination Fee: This is the fee a broker will charge to find and arrange your loan, submit the application, and arrange closing.
Yield Spread: One of the trickiest items for consumers, this is the money a broker would earn from a lender for selling you on a higher interest rate. Brokers have to show this on your final statement prior to closing, but they DO NOT have to include in your Good Faith Estimate upfront. You should always ask if you are being charged a Yield Spread and definitely get an answer why if you are being charged one.
However, if you choose a No Closing Cost option with your mortgage, a Broker will charge you a Yield Spread, which will be reflected in a higher Wholesale interest rate and monthly payment. This option means that you would not have to pay the Closing Costs directly associated with your loan upfront at close of escrow. The Yield Spread would be used to cover the closing costs directly associated with your loan. There are certainly scenarios where this option makes more financial sense than either paying your costs up front or borrowing. Our Break Even Calculator can help you determine if this option makes sense for you.
What do I need to be aware of when working with a Mortgage Broker?
While mortgage brokers work on your behalf, they do have limitations.
- Brokers are usually limited in the number of lenders they can effectively contact, and therefore may not get your best rate.
- Not all Brokers are created equal, and some will attempt to charge you the highest fees they can. For example, your mortgage provider should usually only charge a Yield Spread to reduce your upfront closing costs or get a certain rate.
- Your broker will usually not disclose which lenders he/she is contacting.
