If you’re wondering how mortgage brokers get paid, you’re definitely not alone. With a lot of mortgage brokers offering their services for free or some charging thousands, it definitely can seem very odd and also difficult knowing whether you’re getting good value for money.
Mortgage brokers get paid in two ways, directly with a fee from the client they help secure a mortgage for and through a commission for recommending mortgage products or other complementary services to different companies.
Mortgage brokers that don’t charge a fee get paid exclusively through commissions although these can be quite sizable, so definitely don’t feel guilty you’re getting something for free. Below I’ll run through how much they get paid and ways you can ensure you’re getting value from their knowledge and advice.
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What Are Average Mortgage Broker Fees?
Mortgage advisors can charge you directly for their services in the form of a fee. The average mortgage broker fees are around £500 although can go as high as £1,000 if they’re offering very specialised advice or you have a complex situation that will take a lot of time.
Some mortgage brokers charge zero fees. When they do this they earn all of their money through commissions from recommending you to mortgage lenders or recommending other products and services. These commissions can be quite lucrative which I’ll explain below.
How Much Commission Does A Mortgage Broker Make?
Mortgage brokers earn a commission usually between 0.35% and 0.45% of the total loan value. This means the higher the amount of money you borrow, the higher the commission, with them making around £400 per £100,000 mortgaged.
For example, if you were to take out a £250,000 loan, with an average 0.4% commission the broker would earn £1,000. Depending on how long it takes the broker to process your application, it can be very lucrative if it’s a straightforward and quick application.
This is why some mortgage advisors offer their services for free as they can make a lot more money through the commission from the lender than they can through direct fees to their clients. It can also help make their services more appealing to get more business, although now you know why they’re free so make sure you get them to work for their commission!
This is why it’s essential you’re asking them the right questions and challenging them to make sure you’re getting good advice and the best product for you.
Making Money Recommending Other Products and Services
Mortgage advisors can also make money by recommending or even delivering other complementary products and services. I’ve listed a few of these below and depending on the mortgage broker you’re using will depend on what other services they can deliver directly, or earn a commission by recommending you to another company.
- Life insurance products
- Home insurance products
- Will writing services
- Financial planning services
This isn’t a complete list, however, it’s always worth knowing that the mortgage broker may be earning money by recommending a product or service to you, so make sure it’s definitely right for you.
When Does A Mortgage Broker Get Paid?
A mortgage broker gets paid when the mortgage gets closed and you have the keys to your new property. This is both for the commission from the lender and if they’ve charged you a fee for their services directly.
If they recommend other products and services to you such as those I’ve highlighted above, they may earn money from them which can be paid before your mortgage is closed. This is because they’re separate products, more than likely with a different company.
The individual mortgage brokers themselves then usually split any fees and commission that is earned with their company as well as usually earning a base salary.
Are There Different Types of Mortgage Brokers?
Yes, there are different types of mortgage brokers. The two main types of mortgage brokers are called tied and whole market brokers, each have their advantages and disadvantages which I’ll explain below.
Tied broker. This type of mortgage broker is restricted to only being able to offer a limited number of mortgage products. This is because they usually have relationships with certain lenders where they may get additional benefits for being more exclusive, or they might even be employed directly with a particular lender. Whilst this can be a benefit if they’re able to offer you a better deal than what is available on the open market, it can also work against you as you’re not able to compare all options available to you.
Whole market broker. As the name suggests, this type of broker has access to the whole market so are able to offer you a product from any lender. Having access to all lenders can mean you’re more effectively able to compare offers and know you’re getting a good deal as opposed to a tied broker that may only be able to see offers from a handful of lenders. However, whole market brokers may not be able to get access to more exclusive offers only given to tied brokers.
What Questions to Ask A Mortgage Broker? Get Value!
As you can see, mortgage brokers can earn quite a lot of money both directly through a fee and also with a commission from the lender. Knowing what questions to ask your mortgage broker can ensure you’re getting good value for money and that they’re offering you the best product to suit your needs.
Here are a few questions that you should ask your mortgage advisor.
- What is your fee?
- How much money can I borrow?
- What deposit do I need?
- What are the monthly repayments?
- Do you have access to the whole of the mortgage market?
- How much does a different deposit level affect monthly repayments and interest rates?
I’ve also written a post that goes into a lot more detail about what questions to ask a mortgage broker that may be a helpful read, including why the question is useful and a bit of background on what answers to expect.
Are Mortgage Brokers Worth The Cost?
A good mortgage broker should be able to find you a better deal than you can find yourself, or be able to offer you advice to enable you to find a product more aligned to your personal circumstances.
With all of the mortgage comparison sites available nowadays, it’s actually very easy to quickly compare the quotes your mortgage advisor can offer to what you can get yourself. However what is hard to compare is the value of their advice, which can be extremely valuable to those people that have complicated circumstances.
For example, those people wanting to get a mortgage with bad credit, have lots of debt, a low deposit or a number of other things that mortgage lenders usually don’t like to see when they run their credit checks. Mortgage brokers can help you navigate these issues and recommend the products to go for that will be best for you.
Summary
Overall, mortgage brokers get paid quite a lot for recommending you to certain mortgage products so make sure you’re getting value out of their time and advice. Knowing how much mortgage advisors get paid and how their fees work may also be able to help you save money from your moving budget.
With all these options, another common question is whether you can use more than one mortgage broker which I’ve explained in this post that you may find useful.
I hope this post has been helpful, hope all goes well securing a mortgage and I hope you enjoy your new home!
Hi, I’m John. I’ve always had a keen interest in Finance, so much so that I’ve made a career out of it! This site is a place where I can share everything I’ve learned as well as give me the excuse to research certain topics.
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