How Do Mortgage Brokers Get Paid?

When a prospective homebuyer finds out they don’t need to pay for the services of a mortgage broker, their first thought is often: “What’s the catch?”

Like many financial advisers, mortgage brokers typically get paid by commission. The lender providing the mortgage pays the broker that commission (finder’s fee) for referring and managing the application and mortgage closing.

How Much Do Brokers Earn?

Commission rates for mortgage brokers vary widely, depending on the lender, the mortgage type, the length of the mortgage term and so on.

On average, this compensation can range from roughly 50 basis points (0.50% of the mortgage amount) for one-year terms to 110 basis points (1.10% of the mortgage amount) for five year terms at prime lenders.

As a quick example, suppose your mortgage broker helps you close a $300,000 four-year fixed mortgage. Based on a commission of 0.90% they would be paid $2,700. Mortgage agents generally have to split this commission with their brokerage house, but they usually keep at least 80% of it or more.

Note: Broker compensation on non-prime mortgages is a little different with the broker typically charging a fee to the client instead of getting paid by the lender.

Trailer and Renewal Fees

Besides finder’s fees, mortgage brokers have various other ways to make money.

One is a trailer fee. That’s where the lender pays the broker an ongoing percentage of the mortgage amount for the life of the mortgage (as long as the client remains with that lender).

The trade-off for the broker is a lower upfront commission when the mortgage is signed, but in return they receive something like 0.15% of the total mortgage amount each year.

Some brokers go out of their way to push trailer fee lenders for this ongoing compensation. The upshot to trailer compensation is that the broker is less likely to churn your business (i.e., encourage you to switch lenders at renewal simply to get paid again).

A renewal fee is like a trailer but it’s a lump-sum payment that a lender makes to the broker at maturity (when their client renews with that lender).

In both cases, trailer fees and renewal fees should always be disclosed to the client since they have the potential to influence the broker’s mortgage recommendations.

How a Broker Can Get You a Better Deal

In today’s competitive mortgage market, many brokers willingly give up part of their commission in order to get their client a lower rate. This is known as “buying down” the rate. Not all lenders allow this but most do. That said, many lenders impose buydown limits (e.g., 10-15 bps).

In this situation a mortgage broker will trade a portion of their commission (or trades in “loyalty” reward points they have earned from the lender) in order to lower their client’s mortgage rate.

Buydowns are most common and aggressive at online brokerages that make their money by doing large volumes of deals. A volume-based model justifies them making less on each mortgage, and hence buying down your rate further. Just keep in mind that the less a broker makes, the less advice and/or service you might receive (but there are many exceptions to this).

Broker Commission Conflicts

One key criticism of broker pay is that it leads to some brokers sending the majority of their business to just a handful of lenders. They may do this to gain status benefits or because those particular lenders pay the most. But not all brokers favour one lender for selfish reasons. Often, they’re relationship with one lender affords them (and their clients) better service and faster turnaround times. Just be aware that brokers who push only a few lenders are usually not shopping the market for the best absolute deals.

Incentives offered by lenders, such as tiered pricing, points programs and volume bonuses can also lead to conflicts. This problem has led some provinces (like B.C.) to legislate explicit disclosure of broker compensation.

It’s important to keep things in perspective, however. Consider bank mortgage specialists, for example. They sell only their bank’s mortgage products, even though another lender may offer a much more competitive rate and terms. In most cases, bankers also get paid more for selling a higher interest rate.

Spy Tip: If you’re dealing with a bank, ask for at least 5-10 basis points off the banker’s “floor rate” (a floor rate is the lowest rate they can offer without management approval). This will require them to get a “pricing exception,” which you have every right to push for if you’re a well-qualified borrower.

Questions to Ask Your Mortgage Broker

If you want to be sure your mortgage broker is working in your best interests, here are some simple questions to ask:

  • How many lenders have you sent business to over the past 12 months? (this is somewhat arbitrary but look for 7-8 minimum)
  • What percentage of your business has gone to your top lender? (look for less than 50%)
  • How much commission do you stand to receive if my deal closes, at closing and when I renew? (1% of the mortgage amount is routine for a 5-year term)
  • Will you tell me if any other broker lender is offering a lower rate for the same term, compared to what you’re offering?

Conflicts aside, brokers know that websites like this exist. Therefore it would take a broker who has a very high opinion of their service, or one who is simply ignorant or stubborn, not to quote competitively these days.

And the truth is, most mortgage brokers genuinely want to offer great rates and close the deal for their client. After all, a happy customer is a repeat customer, not to mention one that is more likely to refer the broker to friends and family.



40 Comments

  • Theepa says:

    what is the mortgage brokers fee, if the mortgage amount $400,000.00 rate 3.75% 5 years?

  • Chris says:

    It depends on the lender but usually about 1% ($4000) if it’s a regular mortgage.

  • Jackie Ollivier says:

    are the finders fees for brokers the same if they’re going through a private lending company? Do you know on average how many basis points they’d receive on a one year term with a private?

    • The Spy says:

      Hi Jackie,

      Brokers are compensated differently on private deals. Typically the broker is not paid a finders’ fee from the private lender. Instead, they usually charge the borrower a broker fee. That fee can be anywhere from 50 basis points (of the loan amount) to 200+ basis points, depending on the broker, type of mortgage, location, difficulty of the application, etc.

      It’s hard to specify an average but for a general private first mortgage with 30%+ equity, reasonable risk and a highly marketable owner-occupied residential property, competitive broker fees are somewhere around 100 basis points (one percentage point of the loan amount).

      In this scenario, the private lender will then charge its own fee on top of that, usually ranging from 100 to 250+ basis points.

  • Frank says:

    what is the mortgage brokers fee, if the mortgage amount $575000 rate 2.65% 5 years?

    Please

  • David says:

    Roughly $5750 minus whatever split there might be with the brokerage.

  • Rio says:

    Seeking $130000 2nd Mortgage or home equity line of credit with an Ontario broker. Current home 1.1M with $560000 equity. What would be the commission for a 2nd Mortgage vs HELC? What can I do to ensure the broker is being honest in providing the best options for me and not their wallets?

  • 416 Broker says:

    Brokers usually charge the client a fee to arrange a second mortgage because lenders don’t usually pay on them. For most brokers it ranges from 1% to 2.5% of the mortgage amount.

    For HELOCs brokers get paid by the lender. It can be anywhere from 1/2% to 1% of the amount drawn. Sometimes it is on the approved limit.

    I would make sure the broker discloses all the lenders he/she has compared. Ask for a list of lenders by name and ensure it’s more than a few. Have the broker explain exactly why the lender he recommended is in your best interest compared to all others.

  • Morgan Homehow says:

    It is not a surprise that they get a cut. No one in the world would work for free.

  • It appears that brokers are better compensated by going with lenders who pay highest bps+ volume bonus+points+trailer fees+renewal fees + other rewards! And why not? Bottom line: brokers wanna max their income and must also max their in-company split to really max $$$ . That said… caveat emptor! (Money talks too much in the dog_eat_dog world of business) . Capitalism and Reality in action!

  • Russ says:

    The reality is, mortgage brokers/agents are obligated to work for the best interest of their clients, stated in the MBLAA and the training material, as well as basic knowledge to pass the final licensing exam. In fact if your file is closed and the principal broker finds out that it wasn’t the best rate/option for the client, you can get your licence revoked. I can say with confidence that it’s heavily regulated…in Canada at least.

  • The Spy says:

    @Russ: Some provinces specifically mandate client suitability standards. Some provinces don’t. Even in the provinces that do, *some* brokers routinely choose the lender with the best economics (for them). And you’re absolutely right that licenses can theoretically be revoked for clear disregard of the client’s best interests. But it almost never happens in practice. Most brokers are good people doing the best they can for clients. You just have to make sure your broker is one of them.

  • South Blair says:

    Do I need a mortgage broker to purchase a brand new house?

  • Christian says:

    After 3 years moving from fixed rate of 3.85% to variable rate of 3.39%. Another bank offering 3.04% variable rate deal. Is it wise to take it? If I move on will my broker still get anything from my lender or new lender.

    • The Spy says:

      Hi Christian, Too many factors at play to answer #1. Regarding #2, if your mortgage agent is brokering the deal with the next lender, they will pay him (unless it’s a non-prime lender for people with weak credit, non-traditional income sources, etc.).

  • Haroon says:

    good job 25% down for 785000 home getting td rate 2.98 I think it’s not a good rate but not much time any advice

  • Mark Thompson says:

    On a typical non-prime mortgage what would a broker stand to make? Our broker is pushing us towards a non-prime lender and then refinancing after a year rather than dealing with the things preventing us from getting a prime mortgage.

    • The Spy says:

      Hi Mark,

      Typically it’s anywhere from 0.50%-point (for short terms where the lender pays a finders fee) to over 2%-points (including broker fees) for private financing, depending on the type of mortgage.

      We don’t know your circumstances but perhaps it’s possible that your credit profile cannot be corrected quick enough to get a prime mortgage?

  • Tayyab says:

    Can u please explain about this basis points? How a broker get basis points and how that basis points give benefit to broker in terms of reducing interest rate or to get its own benefit fir his own or how a broker can cash that basis points?

    • The Spy says:

      Hi Tayyab,

      One basis point (bp) equals one one-hundredth of a percentage point.

      So:

      1 bp = 0.0001

      100 bps = 0.01 (one percentage point)

      Suppose your mortgage is $100,000 and a mortgage broker sells you that lender’s standard 2.99% rate that pays her 110 bps.

      The broker’s commission would therefore be: $100,000 x 0.011 = $1,100

      Now suppose the broker wanted to “buy down” your rate by 10 bps to 2.89%.

      She would multiply the buydown by the lender’s buydown factor (e.g., 4.7 to 1) to determine her new commission.

      So 4.7 x 10 bps = 0.0047

      Multiply that by the mortgage amount to determine the buydown cost, so: 0.0047 x $100,000 = $470

      So in this example, the broker would make $1,100 – $470 = $630.

      From that amount, the broker pays their brokerage house a cut (e.g., 5-15%), overhead, marketing costs, staff, licensing fees, etc.

  • Fang says:

    How long will the broker receive commission from the lender after closing?

  • The Spy says:

    Hi Fang, Most broker commissions are one-time lump sums but some lenders pay less up front and then pay annual trailers or renewal fees until the client discharges the mortgage.

  • Kelly says:

    Hey everyone, do you know if agents make more commission if they send their clients to A lenders- like Big Banks than sending their clients to B lenders like credit unions?

  • ABBroker says:

    Sometimes they do. I find mortgage finance companies pay the most.

    True B lenders often don’t pay brokers at all or offer a much lower “fee split.” That results in less compensation than what a bank would pay. Then again we’re talking apples and oranges here because banks don’t do B lending.

    Brokers often have to charge clients fees to get paid on B deals.

  • david says:

    Do brokers compete on commission rates? are there discount brokers in the same vein as discount realtors? are brokers facing the same technology disruptions that realtors are experiencing with the long term prognosis of lower and lower commissions?

  • jane says:

    we have used a mortgage broker for our first mortgage and a renewal. We sold that home, building a new one and the same mortgage broker is applying to the same mortgage company as the previous two times. Can I ask them to show me all the lenders they have access to because it seems to always be first national? I see lower rates on RateSpy than what FN is offering?

    • The Spy says:

      Hi Jane, Past studies have shown that 90% of the average mortgage broker’s volume goes to just 3-5 lenders. Some brokers send well over half their business to just one lender. These brokers believe their advice and service is worth more than lender choice, so they focus on lenders who give them good turnaround (First National has among the best service in the business), decent rates (which are rarely the best rates) and, oftentimes, the best compensation and perks for the broker.

      That’s why we believe in the DIY approach to mortgage research, in addition to professional counsel. If you put all your trust in a traditional mortgage advisor to get you the best deal, that’s placing a lot of faith in someone who may not always be looking out for your best interests.

  • Nicole says:

    What is the average earning for mortgage broker per year?

  • Bruce says:

    MI bought a property for40,000. at a 10% interest rate.I find out later that my Morg. Broker is receiving 20,000. Of that 40,000.I was not informed of this ridiculous amount an He recieved from the morg.Paymentof 440.half of that which is 220.per month for 15 yrs. What sane person would knowingly pay 20,000. Extra for a property worth only 20,000.? This doesn’t look to meashim having my best interest in mind.Is this action even legal?

  • Rauf says:

    I was told by my mortgage broker that he is not paid commission by the lender (certain bank) and therefore I am asked to pay it directly. He mentioned that certain banks do not work with the brokers. Could you please confirm this is the case? Could you provide the list of major banks in Canada that do no work with brokers?

    • The Spy says:

      Hi Rauf,

      Many banks don’t pay brokers, including but not limited to RBC, BMO, CIBC, National Bank (in most provinces), HSBC, Tangerine, motusbank and Simplii.

      How much is the broker charging you, for what services and did you agree to this before engaging him?

  • Rauf says:

    Thanks Spy. We agreed on 1.5% of the mortgage payment which I see is slightly high and on the higher end of the range proposed by you. Yet, I guess I need to honor what we agreed upon.
    Thanks again for confirming this.

  • hedbangr says:

    @Rauf

    Did you mean 1.5% of the mortgage payment or 1.5% of the mortgage amount. If the former, that seems really low. If the latter, that is absolute craziness.

    Do you have credit problems or something?

  • LS says:

    I’m renewing mortsges on a rental-property. My mortgage broker informs that I can not get as good a rate on a secondary home as on my primary.
    Is that common with both banks and credit-unions?
    If so, does it make sense to put it on my primary house (which is mortgage-free), and then keep a paper-trail for tax-write-offs?

  • Rebecca says:

    I now want to pay off my mortgage Very early. My mortgage broker says she told me to keep it until August or she won’t get her commission. But to keep the mortgage an extra 3.5 months will cost me $2,633 in interest. I remember asking if there were any prepayment penalties. I was assured not but I didn’t understand she would get hit.

    • The Spy says:

      Hi Rebecca, Will she pay your interest? Barring that or some other agreement you might have had with her, your personal finances are your business and you owe her nothing.

  • Michelle Stormont says:

    I am refinancing a home and taking some cash out, loan is for $310,000 and appraisal is $510,000. 3 days before I was to sign papers the lender increased my origination fee from 0.184% to 1.059% which has made me to look at costs again. I now have some questions about my broker. Is broker compensation $7750 appropriate amount? I am also now aware that my interest rate of 3.625 is high for date it was locked.

    • The Spy says:

      Hi Michelle, It’s hard to say without more info on you. But I’d definitely recommend getting a second opinion from another broker.

      Why did your broker say the lender’s fee was increasing at the last minute? And, what is the lender and term? (By the way, 0.184% sounds low for a lender fee.)

      It seems the broker is charging you a 2.5% ($7750) “broker fee” on top of the lender’s 1.059% “origination fee?” If so, you must have trouble getting approved with a regular lender. In such cases, broker + lender fees are common, but a 2.5% broker fee on this size deal is certainly above average, unless you have a rather challenging case.

  • David63 says:

    @Michelle
    I don’t know your situation and how much work your broker should do to make it happen. For standard process broker will receive commission from lender. For additional work (depending how deep) commission could be up to 1%.
    3.625% is a very high interest!!!

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