How Do Mortgage Brokers Get Paid?
If you have ever wondered, “If mortgage brokers are free, how do they actually make money?” you are not alone. Let’s clear up the mystery once and for all.
Are mortgage brokers free to use?
For almost every client, yes. Working with a broker costs you nothing out of pocket in most cases. You get expert advice, access to dozens and dozens of lenders with their own niches and custom strategies without cutting us a cheque.
Who pays the broker?
The lender. When we send your mortgage to a bank, credit union, or monoline lender, they pay us a commission for bringing them the business. That is how most brokers get paid: by the lender, not by you.
This commission does not change your interest rate. You are not paying extra to use a broker. In fact, brokers can often negotiate lower rates than the banks advertise.
Why Do Lenders Pay Brokers Instead of Just Finding Clients Themselves?
It is a fair question. If brokers are “free” to clients, why would a lender shell out thousands of dollars in commission when they could just deal with you directly?
The answer is efficiency.
Brokers pre-vet clients. When you walk into a bank branch, you could be serious… or you could just be “rate shopping.” Banks waste a lot of time on people who never follow through. Brokers, on the other hand, only get paid if a mortgage actually funds. That means we screen clients carefully, making sure applications are solid before they ever hit the lender’s desk.
Funding ratios matter. Lenders track how many deals a broker actually funds versus how many they submit. If a broker funds 4 out of 5 deals, lenders reward them with better rates and faster turnaround. If a broker wastes their time and only funds 1 in 5, that broker may lose access to the best products - or even get cut off. This makes brokers highly motivated to only send quality clients.
Monolines don’t have branches. Some of the most competitive lenders in Canada, known as monolines, do not even have branches or storefronts. They rely almost entirely on brokers to bring them business. Without brokers, these lenders would struggle to find clients at all, let alone well-qualified ones.
So in short, lenders pay brokers because it is cheaper and more efficient than staffing branches with people chasing clients who may never sign. Brokers bring them serious, vetted borrowers - and that is worth paying for.
Do brokers get paid more if they give me a higher rate?
This is a common suspicion. The short answer is no.
Lenders pay brokers a standard commission percentage regardless of the exact rate you take.
Some lenders offer small incentives for certain products, but these are minimal compared to the value of referrals and repeat business.
A reputable broker has far more to gain by getting you the best deal possible, not by chasing a tiny commission bump.
Are all lenders available through brokers?
Not always. Most banks, credit unions, and monoline lenders work with brokers. However, some lenders, including certain Big 5 banks, only offer mortgages directly to clients. That is why it is important to know that brokers can shop most of the market, but not absolutely all of it.
When do clients pay broker fees?
There are exceptions where a broker charges a direct fee to the client. These include:
1. Private mortgages
If your file does not fit traditional lenders and you need a private loan, fees are part of the deal. Both the private lender and the broker are compensated through fees that are added to your closing costs.
Sometimes this is a flat fee.
Other times it is a percentage of the mortgage amount.
Either way, the fee is disclosed upfront before closing.
2. Commercial mortgages
Larger deals such as multi-family apartment buildings or commercial spaces often come with broker and lender fees. These are also transparent, built into your closing costs, and in many cases included directly in the mortgage amount.
Again, it could be a flat fee or a percentage, depending on the size and complexity of the loan.
What about renewals and refinances?
Here is something most borrowers do not realize:
If you renew directly with your existing lender, your broker usually does not get paid.
If you refinance or move your mortgage to a new lender, then the broker may earn a new commission.
This is one reason why brokers are motivated to negotiate aggressively at renewal. It benefits you, because your broker is shopping around to make sure you do not simply accept the lender’s first offer.
Do I pay if I break my mortgage early?
This is another area of confusion. Broker commissions are paid at the start of the loan. If you break your mortgage early, it is the lender that charges you the penalty, not the broker.
The bottom line
For most residential clients, using a broker is free.
Lenders pay us when we successfully place your mortgage with them.
Broker fees only apply to private or commercial loans, and they are always disclosed upfront.
Commissions do not inflate your rate.
Renewals and refinances are where brokers can often save you thousands by negotiating on your behalf.
Working with a mortgage broker gives you choice, negotiating power, and guidance without dipping into your wallet.
Let’s connect - I’d be happy to discuss transparently with you how I’m compensated, and how my services can help you save money through strategy and proper planning along with a great rate.
Jeff Dinsmore
Mortgage Broker
FSRA # 10315
VeloMortgage.ca
TMG - The Mortgage Group