How is your mortgage broker paid?
by Glen Jacobs
Some people are still surprised when I explain to them that my services are free, when lawyers, accountants, and other professionnels demand fees.
It is normal for a person to be remunerated for their work, so how is a mortgage broker paid?
The mortgage broker’s commission
[Note: I have always thought that |
|
it is important to understand how a person is paid for services rendered. This permits us to discern what motivates each party in a transaction and avoid conflicts of interest.]
All residential lenders pay a commission to the mortgage broker when the mortgage is disbursed. The commission is a percentage calculated on the amount of the mortgage.
Example: the commission on a $200,000 mortgage is twice as large as that on a $100,000 mortgage.
Given that the mortgage broker doesn’t control the amount of the mortgage, he cannot manipulate his commission.
Certain factors can augment the commission percentage slightly:
- The length of the mortgage
- Certain variable mortgages
- The length of time over which a rate is guaranteed.
|
Does the INTEREST RATE influence the commission of the mortgage broker?
It is important to note that contrary to the bonus structure offered by certain banks to their employees (see “Will my bank offer a better rate than a broker?”), the broker is not paid more because the interest rate is higher or lower. He therefore has no inclination to increase rates.
Volume bonus paid to the broker
Several banks offer brokers a bonus structure based on the volume of business the broker offers the bank. This ‘volume bonus’ can be a significant amount (20-25% of the commission).
It is possible that certain smaller brokers with a much lower volume are influenced by the volume bonus. Super-brokers such as Intelligence Hypothécaire (8.1 billion dollars in 2005) or Multi-Prêts (5.3 billion – 2005) have already reached the limit of almost all their volume bonuses, and are much less influenced in their selection.
Conclusion: Mortgage brokers receive a commission on the amount of the mortgage and not on the interest rate they offer to their clients. It is preferable to work with a broker who already handles a significant volume of business, so that the ‘volume bonus’ is not a factor in their choice of lender to present to you.
|
