How Mortgage Brokers/Lenders Make Money

Mortgage brokers make money several different ways.  They can manipulate these potential profit avenues all day long to come up with their desired profit

• Closing costs - This includes fees for applications, credit reports, appraisals, processing, underwriting, document preparation, etc.  These fees are sometimes referred to as "junk fees".

•  Origination fees  - Origination fees are usually 1% of the loan amount.  This is simply a fee the broker charges for writing the loan. 

• Discount points - points are prepaid interest.  They are usually only charged when you want an interest rate that is below market rates.  Discount points are expressed as a percentage of the loan amount - 1 point is equal to 1% of the loan amount, 3 points is equal to 3% of the loan amount, etc.  Example:  If you are quoted an interest rate of 7.25% with 0 points but you have your heart set on a interest rate of 7%, you could pay 1 point and buy the interest rate down to this amount. 

• Yield Spread Premiums -   YSPs are rebates paid by wholesale lenders to mortgage brokers for writing loans that are above "par" or market interest rates.  If the 'par' rate is 8% but your mortgage broker can get you to pay 8.5%, the wholesale lender will pay your broker an extra commission called a YSP.  YSPs can help consumers who are short on cash - they can pay a higher interest rate and have their mortgage broker pay some of their closing costs.  But mortgage brokers make A LOT of money with YSPs without the consumer's knowledge (until the day of closing) or consent.  More on this later.

read more