What do Mortgage Brokers Do?

A mortgage broker acts as an intermediary who sources mortgages on behalf of individuals or businesses. Traditionally, banks and other lending institutions have distributed their own products. However as markets for mortgages have become more competitive, the role of the mortgage broker has become more popular. Today in most developed mortgage markets (especially the U.S., UK, Australia, Spain and Canada) mortgage brokers are the largest distributors of mortgage products for lenders. However, given the critical nature of the mortgage broker's role, a great number of consumers are now seeking out the services of Certified Mortgage Planners, industry experts that work in concert with Certified Financial Planners to align consumers' home finance position with their larger financial portfolio(s). The majority of mortgage brokers are regulated to ensure a level of protection for the consumer. The extent of the regulation depends on the jurisdiction.

Mortgage brokers are paid by way of commissions, usually an up-front commission (0.30% to 0.70% of the total loan amount) and a trailing commission (0.05% to 0.25% of the loan balance, calculated annually and paid monthly). Some lenders don't pay commissions at all, and a brokerage fee is charged to the client. These are generally confined to commercial loan products. Although the commission paid to the broker is based on the value of the loan, it is not the borrower who pays it. The commission is borne entirely by the lender, so that a loan product available through a mortgage broker will cost no more than if the borrower applied for it through the lender direct. The cost of the commission paid by a lender is a much cheaper option than maintaining offices and lending staff.

Most lenders pay similar commissions, so bias in this regard is unlikely to be a problem. The differences in commissions offered by various lenders has more to do with the raising of a lender's profile, and attracting brokers to training and accreditation courses. This ensures that the lender remains relevant in a competitive environment.