How Your Mortgage Broker Gets Paid
The interesting part comes here. Your mortgage broker is presented with 3 income levels for himself/herself. Which means: if he gives you the lowest interest rate you qualify for, he makes a low amount, if he gives you a higher one, he/she makes more money.
Specifically, it will come like this:
Interest rate of 5.04% – the mortgage broker earns 1.25% of the mortgage loan amount.
Interest rate of 5.15% – the mortgage broker earns 1.50% of the mortgage loan amount.
Interest rate of 5.30% – the mortgage broker earns 2.25% of the mortgage loan amount.
On a $200,000 home loan, this means your mortgage broker’s company can earn $2,500 or $3,000 or $4,500. Sometimes, overhead alone does not allow your mortgage broker to quote you the lowest interest rate you qualify for. Overhead makes many mortgage brokers turn away applicants who want to borrow small amounts.
Once your mortgage broker is assured that your mortgage fits Fannie Mae criteria and you’ve accepted the interest rate, he/she will look for a wholesale buyer who can work with your particular circumstances.
The wholesale buyer who gets your mortgage loan turns around and sells it to another wholesale outfit or to an investor (this could be a bank, a hedge fund, a pension fund, a private person or any company that has the money). I heard mortgage brokers complain they sold a mortgage loan for $X and the wholesale buyer sold it within a week for $6,000 or 7,000 more.
You make a lot of people a lot of money when you take out a mortgage loan.
Some of the biggest wholesale buyers are the big banks.
You could enter into an agreement with the mortgage broker whereby you pay them directly and there’s no spread premium (the mortgage broker does not get paid more if you get a higher interest rate loan).
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