Mortgage brokers are a popular option for those looking to refinance their mortgage, but do they mark up rates? The answer is yes, but it's important to understand how this works in order to avoid paying extra fees. Like other retailers, mortgage brokers prefer not to disclose their margins, which can vary depending on the lot. All of this translates into a “cushion” that must be included in the interest rate. Direct lenders make money by originating mortgage loans at an interest rate that meets their financial commitments.
A mortgage broker will add a retail margin, or profit margin, to each wholesale rate. These two elements, when combined, determine the final interest rate presented to the mortgage customer. The mortgage lender usually pays the mortgage broker a fee or commission after the loan has been closed. Some brokers charge directly to the borrower, rather than to the lender; in these cases, this is usually a fixed rate that can be financed with the mortgage or paid at closing.
It's important to be aware of these fees and take steps to avoid them when refinancing your mortgage. Market forces are what drive the MBS markets; those that drive the base price of a mortgage-backed bond on which mortgage rates are set. It's not uncommon for a direct lender to get 5 or 6 points with an FHA or VA home loan, while mortgage brokers get approximately 2 points, which are paid by the lender, not you, the borrower. While direct lenders, custodial banks, and credit unions all have a set of underwriting guidelines, mortgage brokers have access to hundreds of insurance teams.
A mortgage broker has access to more lenders and mortgage products than a bank loan broker, who is limited to mortgages offered by the bank. A mortgage broker with a large executive team (with high salaries) will result in the need for higher retail margins. Most direct lenders have large lines of credit that, in turn, offer and underwrite according to the guidelines of their investors, and then offer their own home loans. When planning the down payment on your loan, talk to a mortgage lender to see what price discounts you might be eligible for.
But what exactly is a mortgage broker and what is it that makes them different from, for example, a loan broker at a bank? Mortgage brokers want to present their best option to increase their chances of winning the lending business. You can check if a mortgage broker is licensed through the Nationwide Mortgage Licensing System and Registry. The difference between a mortgage broker and a lender is that a broker doesn't lend the funds for mortgages. In addition, each mortgage broker must have the approval of a wholesale lender in order to offer their products and conditions. Ultimately, you have a responsibility to find the best mortgage provider, whether through a broker or a loan agent, and to look for the best rate and lowest costs. To ensure you don't pay extra fees when refinancing your mortgage through a mortgage broker, it's important to understand how they make money and how they mark up rates.
Be sure to ask questions about fees and commissions before signing any paperwork so you can make an informed decision.