Home Loan Broker & Mortgage Broker Income & Pay Structure

There are two types of home loan advisors which can assist in facilitating a home loan, a direct mortgage lender (their agent or representative) and a home loan broker.  A home loan broker is an advisor who can shop multiple mortgage lenders (ultimately the entity funding your home loan) to find the right home loan product, fees and interest rate for you.  A direct mortgage lender is a company which actually lends directly to you from their own portfolio of home loan programs.  Learn more about the types of home loan advisors here.

How does a home loan broker get paid?

Home loan brokers are paid on a commission structure typically with a “draw” against future earnings.  Home loan brokers earn a fee or commission on the loan placement between borrower and mortgage lender.  In some cases the mortgage lender will pay the home loan broker; in some cases the home loan broker will charge origination fees and/or make discount points in which the borrower pays such fees.  In other cases, home loan brokers make money both from the mortgage lender and from the borrower in the form of fees or points on the home loan.

Mortgage lenders pay home loan brokers through what’s called a Yield Spread Premium or “YSP”.  Yield Spread Premium is the least known cost to the borrower.  Essentially it’s a fee or commission paid to the home loan broker for placing a loan with them at a premium interest rate above the “par rate”.  The par rate is the average interest rate the market will bear for a home loan and is set by the mortgage lender.  The Yield Spread Premium serves as a kickback or commission to the home loan broker.  The mortgage lender pays the home loan broker this Yield Spread Premium commission on the amount you borrow.  The home loan broker realizes anywhere from half a percent up to four or five percent of the loan amount, but usually within the 1% to 2% range of the principal loan balance ($5,000 to $10,000 on a $500,000 loan).  This fee is passed on to the borrower and results in a higher interest rate home loan.

When a home loan broker is paid by the borrower it’s usually in the form of a loan origination fee and/or loan processing fee.  Depending on several other factors associated with the home loan there may be other fees involved including credit report fees, broker fees, or administration fees.  You can learn more about home loan fees here.

Home loan broker fees can be nearly anything the loan advisor deems fair for their services.  This is why it’s incredibly important to shop multiple home loan advisors for your next home loan.  Some charge less, some more, some offer more specialized and attentive service, others work from their garage and offer no service.  This is why we provide you the opportunity to sort home loan advisors by their interest rate quote and their LoanEXA Star Rankings plus member reviews!

How does a direct mortgage lender representative get paid?

Direct mortgage lender representatives making home loans directly to a borrower may charge the same interest rate and earn the same compensation as a mortgage broker, but their income more commonly comes in the form of a commission plus draw, salary, or salary plus bonus for bringing in new loan clients and closing home loans.

Direct mortgage lender representatives may charge or earn the same amount for the exact same home loan, however they’re working for their own direct mortgage lender vs. shopping your home loan to multiple mortgage lenders.

Regardless of how your home loan advisor is compensated, a good home loan advisor can serve your financial and home lending needs efficiently.  Both direct mortgage lender representatives and home loan brokers have advantages and disadvantages to their compensation structure.  This is yet another reason why it’s important to educate yourself first then shop your home loan to multiple home loan advisors through LoanEXA!