If you don’t know the difference between getting a mortgage with the bank or getting a mortgage with a mortgage broker, then this article is for you. In short, banks act as lenders, directly loaning you the money for your mortgage, whereas mortgage brokers act as intermediaries, connecting you with a number of different lenders.
We’ve talked about how this can often lead to better rates for the borrower as you can shop around for rates and aren’t limited to mortgage offers from a single lender like you are at a bank. You might still be wondering how the mortgage brokers and brokerages get paid when they don’t make any money on the interest of the loan. Is there something you’re missing, and is there some ulterior motive? If you’ve ever wondered this or still have reservations choosing between a mortgage broker or a bank, let’s break down exactly how mortgage brokers make their money. Hint: It’s very simple.
Before we look at how mortgage brokers make money, let’s define mortgage brokers and brokerages.
What’s the difference between a mortgage broker and a mortgage brokerage?
Mortgage brokers are licensed individuals who can connect you with lenders to get your mortgage. They act as intermediaries between you, the borrower, and multiple lenders which includes the banks. Mortgage brokerages are simply organizations that consist of several licensed mortgage brokers which collectively have a network of lenders they can access to get their clients mortgages with. Mortgage brokerages include organizations like True North Mortgage and yours truly Perch. As a digital mortgage brokerage, we have licensed mortgage brokers and dedicated mortgage advisors who will work with you to choose the best mortgage for you among all the lenders we work with.
How do mortgage brokers get paid?
So the question remains, if mortgage brokers and brokerages don’t make money on the interest of the loans, how do they make money? The answer is straightforward and ensures that they still have the best interest of the client in mind. Mortgage brokers and brokerages get paid in commission from the mortgage lenders whenever a client gets a mortgage. This “finders fee” is paid usually in relation to the size of the mortgage, and means that the goal is to get you a mortgage quickly rather than a mortgage with the best terms for the lender.
As a mortgage brokerage, our goal is to help you get a mortgage, and the best way to do that is by finding the mortgage that’s right for you. Unlike a bank or other lender, it’s not in our interest to get you a mortgage with higher rates, we’d rather show you the best mortgage available to you as you’re more likely to get your mortgage with us that way!
How much do mortgage brokers make?
As mentioned a mortgage broker’s commission is usually paid in relation to the size of the mortgage with the lender. A typical commission ranges from 0.5% to 1% of the total mortgage amount. For example if a broker shopped for a mortgage with you and you ended up getting a $500,000 mortgage through them, they might make $5,000 as a commission from the lender, at no cost to you.
So there you have it, everything there is to know about how mortgage brokers and brokerages make their money. At Perch, our goal is to get you the mortgage that you want, which is why we provide you with all the resources you need to make decisions and complete transparency along the way. We’ve also got dedicated mortgage advisors who can give you personalized advice to find you the best mortgage for your situation.