By: Sarah A. Colucci
May 7th, 2018
Not everybody knows that mortgage broker fees are not mandatory and that they vary from brokerage to brokerage, individual agent to individual agent.
That's right. If you got charged a broker fee at some point in the past or are being charged one now, it wasn't and isn't mandatory. That doesn't mean the price was/is unwarranted, however; it merely implies the broker wants to get paid for their time and effort.
As a consumer, it always helps to understand how exactly mortgage brokers make a living. If you are aware of their pay structure, you will be able to readily determine if a fee is warranted or not. After all, nobody likes being gouged.
Let me explain...
Financial institutions, which include banks, credit unions, monoline lenders, etc., that work directly with mortgage brokers, all pay them a commission. In the broker world, this is called a finder's fee.
"A" lenders = great rates, excellent credit, fully verifiable income.
Any financial institution that is considered an "A" lender, meaning they offer the most competitive interest rates to those with the best credit and fully verifiable income, pay the most in finder fees to mortgage brokers. As a result, it's uncommon to see a mortgage broker charging a broker fee on what is considered an "A" deal.
I have heard of brokers still charging fees in addition to the commission they receive. They often do this if there was extensive work involved in getting the deal funded. Unfortunately, others "double dip" or get paid twice on the same file, which, in my opinion, is not an ethical business practice and gives the rest of us a bad name.
"B" lenders = unique financial situations, non-conventional income, bruised credit
Alternative lenders that offer slightly higher interest rates because the mortgage is deemed riskier do, in fact, pay brokers a finder 's fee. They just don't pay them as much as "A" lenders do. Usually, the work involved in closing the deal is the same, BUT some brokers feel they should always be making the same percentage of commission no matter what. Therefore, a fee will be charged in addition to the lower commission they are receiving.
Ultimately, it comes down to the broker's personal guidelines and what he/she feels they have done to justify their fee. Some brokers think getting paid from the lender (even if it is less) is still enough compensation and, in good faith, don't want to charge anything further.
How do you know if a broker fee is justified?
This is a conversation you need to have directly with your broker. For example, if you are closing an alternative mortgage for $500,000, and the brokerage fee is $5,000, know that your broker is already receiving a commission from the lender. You may want to see how the additional cost came to be realized. Was there extensive work done?
Private lenders = unique properties, deals that don't fit into the A or B category.
In this situation, there are NEVER any commissions or finder fees paid to the broker. Therefore, one will almost always get charged a brokerage fee. But again, the amount is not set in stone, and there is no pricing that is mandatory. Therefore, it's best you discuss the brokerage fee with your broker and how they arrived at their cost of doing business. If it feels like an uncomfortable question to ask, then you can always ask someone else or look elsewhere altogether. One deserves to feel comfortable in whatever they are doing especially with respect to finances.
Broker fees to exit
Nowadays, it's common to see brokerage fees charged even if the deal doesn't close. Usually, a document or fee direction is signed at the beginning, which states that should the deal not go through by no fault of the brokers', a fee will be charged. Meaning, if you change your mind after all the work is done, you will still have to pay. I had a deal like this recently, where the borrower was asked to pay a significant amount of money in the event he walked from the deal. He called me because he felt hesitant about proceeding with the other broker.
Here's a link to an article where Monster Mortgage charged a $10,000 fee to the people that decided to stick with their current lender. Read about the story HERE.
Usually, this puts people up against the wall and it doesn't end favourably.
What are your thoughts?
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929
411 Queen St.
15 Wertheim Court, Suite 210
Richmond Hill, Ontario
Sarah A. Colucci, Mortgage Agent Lic. M14000929
Mortgage Edge, FSCO Lic. 10680