How Does a Mortgage Broker Get Paid?

August 7, 2009 12 Comments »
How Does a Mortgage Broker Get Paid?

Mortgage Q&A: “How does a mortgage broker get paid?”

If you happen to use a mortgage broker to obtain your mortgage, you may be wondering how they get paid.

Mortgage brokers essentially work as middlemen between borrowers and banks/lenders, so they can be paid by either parties.

In the past, mortgage brokers got paid via yield spread premium (YSP), which was the commission the bank or mortgage lender provided in exchange for a given mortgage rate above market.

Mortgage Brokers Were Paid More for a Higher Rate

For simplicity sake, the higher the rate, the more YSP the broker would receive.

YSP was also referred to as “par-plus pricing”, “rate participation fee”, “service release fee”, and many other variations.

Mortgage brokers had the ability to make several points on the back-end of a loan, earning thousands of dollars, sometimes without the borrower’s knowledge.

They could also collect money on the front-end of a loan via out-of-pocket closing costs like loan origination fees and processing costs.

For example, a broker was able to charge one mortgage point upfront for origination, meaning one percent of the loan amount, while also tacking on loan processing fees.

[How much do mortgage brokers make?]

The smaller the loan amount, the more points you’d likely be charged, as a point wouldn’t be as meaningful.

Trickier Mortgages Tend to Cost More

Generally, the more complicated or tricky your loan is, the higher the broker costs will be, as it takes more time and energy to close.

So if your loan isn’t plain vanilla, and requires a lot of tinkering and paperwork/legwork to make it work, you’ll likely be charged more, or offered less attractive pricing.

If the loan can be closed with any given bank or broker, you’ll probably be able to shop around to get a better deal.

Of course, there are always exceptions to the rule, and borrowers have certainly paid through the nose for perfectly simple loans.

Make sure you’re clear on what exactly is being charged by the broker for their role in the loan process or you may get a nasty surprise.

Retail loan officers (those that work directly for one specific bank) also get paid in a similar fashion and could potentially overcharge you, but their commissions don’t need to be disclosed like YSP, so you’ll never know how much they made on your loan.

This has led to an ongoing debate about the fairness of wholesale vs. retail lending, although it can actually be advantageous for a borrower to use a broker, as all fees must be disclosed.

In summary, mortgage brokers can make money from:

Loan origination fees
Processing fees
Yield spread premium (this practice is now banned)
Other possible admin/junk fees

If you’re unsure about which route to go, check out my article on mortgage brokers vs. banks.

How It Works Today

As of April 1, 2011, the yield spread premiums described above were effectively banned.  Today, mortgage brokers can only get paid by either the borrower or the lender, not both.

In other words, they charge you directly to close the loan or they get paid by the lender and you pay for that commission indirectly (not out-of-pocket at closing) via a higher interest rate.

It’s similar to YSP, but brokers must choose a compensation plan upfront with all the lenders they work with, as opposed to charging different amounts on each loan as they see fit.

For example, they may choose to earn 1% on every loan they close with Bank A. So if the loan amount is $500,000, they’d earn $5,000. If it’s $300,000, they only get $3,000. And so on.

But they may select a higher compensation structure with Bank B that gives them 2% on each closed loan. This essentially allows them to send their loans to higher-paying banks depending on their ability to sell the customer on a potentially higher rate.

So you can still get a raw deal. Perhaps more importantly, it means they can no longer get paid on both the front- and back-end of the loan.

However, you should continue to be vigilant and look over your loan documents to ensure you aren’t being overcharged.

Put simply, you’ll want them to send your loan to the bank that offers you the lowest interest rate, not the one that gives them the highest commission.


  1. Colin Robertson June 11, 2017 at 9:17 am -


    While it depends on the lender, it’s generally at the end of the month (or a few days later once the dust settles) because there are sometimes bonuses for certain monthly loan volumes. And most fundings occur at the end of the month.

  2. Rohan June 11, 2017 at 5:24 am -

    How quickly after closing does a broker get paid commission?

  3. Colin Robertson December 9, 2016 at 10:18 am -


    With the lower rate you’ll pay about $10k less in interest over the first five years and pay down about 44k in principal versus just 41k and change on the higher rate option. So that would be the advantage, whether you actually keep the loan those five years and recoup the upfront costs is another story. A .375% rate reduction for 1.5 points might seem steep, but it’s hard to say whether it’s good or bad universally. It’s still nearly a half point reduction in rate. As noted, there would be savings long term. Sure, you can probably go to these banks directly if they have a retail program.

  4. Linda Tim December 8, 2016 at 12:16 am -

    I am using a broker who did not disclose a fee prior to finding a mortgage. I should mention this is a refi. My house appraised at $730K I am refinancing a 1st mtg with balance of $260K a HELOC with balance of $150K and tax lien of $55K. I really only need $465K. He just got me a quote from Emigrant Bank for a 5% 5/1 ARM on a jumbo $507K mortgage. He told me that he is able to charge me 1.5 points $7500 which will be his commission and my ARM will be 4.625% 5/1.
    Question 1: If it’s an adjustable rate adjusting in 5 years, how does it help me to pay points – shouldn’t 1.5 points equate to more than .375 in reduced interest rate? This doesn’t sound right to me.
    Question 2: if the fees and costs don’t change if I pay points then how is it he gets a commission of $7500 if I pay points and no disclosed commission if I don’t pay points? I mean why Wouldn’t I be credited in the fees and charges that would have paid the commission if I opt to pay the points which he says are his commission?
    Question3: now that I have the disclosures can I just call Emigrant and ask about the commission and if I get a credit should I decide to pay the 1.5% points?
    Great article – Thank you!!!

  5. Colin Robertson December 6, 2016 at 1:45 pm -


    This happens all the time I’m sure, but customers only complain when rates rise. The opposite could of happened and you would have likely been happy you didn’t lock. Ultimately the customer should indicate that they want to lock a given rate and fee and ask for it in writing to ensure it’s locked, otherwise the broker/bank probably won’t lock without asking the customer first. And they may not lock right away because loans take a while to close so they generally ask to lock closer to closing unless they’re worried rates will rise.

  6. Frustrated November 29, 2016 at 12:30 am -

    Shouldn’t the mortgage broker lock in a rate one you have agreed to the terms which have been offered? Or, at least ask you if you want to lock in the rate? We were given an estimate on a Friday, which we accepted. Then, without any warning that the agreed upon rate had not been locked in, the rate and lender credit changed drastically by the following Wednesday. We were then told that the rate and terms that we had accepted were no longer available. We note that the paperwork with the Friday estimate indicates that the rate is locked, but no expiration date is noted. We cannot understand how this can be proper.

  7. Brian "Bronco" Miller October 7, 2015 at 2:10 am -

    Great articles.

  8. Colin Robertson September 14, 2015 at 8:18 am -


    Probably best to ask your lender to break it down and/or ask the escrow company to explain so you know where all the money is going.

  9. George Harris September 13, 2015 at 5:07 pm -

    I currently did a refi. Since we didn’t pay our last month payment. Won’t that payment be included in the payoff amount. Our mortgage company asked us to write a check for that amount in their name. Shouldn’t it be wired to the new lender or not at all since it was included in the payoff.

  10. Rudy cadet June 23, 2015 at 5:05 am -

    Question, I am working w a broker on a jumbo loan. We are days away from closing. The broker recently found us a better deal through a credit union. She says she doesn’t get paid by the credit union and is asking for 1 point compensation. Payment made to her company(she is owner) or she will pull the loan. Is this legal?

  11. Colin Robertson February 3, 2015 at 11:12 am -

    Hi Vinny,

    Not offhand. It is generally recommended that you research and get reliable referrals before working with one to ensure they’re legit.

  12. vinny February 1, 2015 at 9:20 pm -

    Do you have any recommendations of outstanding mortgage brokers located in the NY long island Area.

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