Broker premium

Broker premiums are for brokers who match borrowers to banks. Bankrate explains.

What is a broker premium?

A broker premium is paid to a mortgage broker by a mortgage lender. The premium is paid to the broker as the middleman who brings the home buyer and the lender together so that the lender can extend the borrower a mortgage.

Deeper definition

The mortgage broker in the home-buying process is a middleman. He works to find home loans for would-be mortgagors that fit their qualifications and needs by searching a variety of financial institutions. In return, he gets paid by mortgage lenders.

Mortgage brokers do not work directly for the financial institution. When the broker is successful at helping the borrower find a loan, the lender of that loan pays the broker a premium. The amount ranges widely, but it is generally between 1 percent and 2 percent of the total amount borrowed through the loan.

Mortgage brokers are different from loan officers, who work for a specific bank or financial institution to qualify applicants for that specific location’s lending services.

With our mortgage payment calculator, it’s possible to find out how much a loan will cost a borrower.

Broker premium example

Joe works as a mortgage broker. He looks for people interested in purchasing homes or refinancing existing mortgages. When he finds someone who needs a loan, he gathers information about that individual and completes a search process for the best possible loan available to them. Joe has working relationships with multiple lenders, and can present the applicant to multiple lenders. He’s paid when the home loan goes through after he connects a borrower with a lender.

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