How brokers get paid (and where it can bite)
A mortgage broker is usually paid by the lender they place you with, and how much they earn can quietly shape which lender they put in front of you.
On a prime mortgage with an A-lender (a big bank or a monoline), you generally do not pay the broker directly. The lender pays them a finder’s fee, commonly somewhere around 0.5% to 1.1% of the mortgage amount, and it usually rises with the length of the term. So a broker earns more placing a five-year term than a two-year, and more with some lenders than others. Many lenders also run volume programs: hit a certain amount of business and your payout rate goes up, or you unlock “status” tiers with faster approvals and better pricing.
Here is where it can bite. Lenders occasionally run promotions that temporarily bump the basis points they pay brokers. When Lender A is paying an extra quarter-point this month, a broker has a real financial reason to send your file there, even if Lender B is a cleaner fit for you. Most brokers are honest and put fit first, but the incentive is real, it is invisible to you, and you are allowed to ask about it. A fair question to any broker: “Do you get paid more for sending me to this lender than to the others you considered?”
The second issue is reach. A lot of brokers work with only a handful of lenders: the ones they know, the ones they hit volume bonuses with, or the ones their brokerage steers them toward. Some products are even captive to a single brokerage platform, so an outside broker literally cannot offer them. The practical result: your file may never be shown to the lender that actually suits you best, simply because it is not on your broker’s short list. Ask how many lenders they work with, and whether they considered anyone outside their usual few.
On B-lenders, alternative lenders, MICs, and private lenders, the money works differently. These deals typically carry a lender fee and often a broker fee too (frequently 1% to 2% or more of the loan), and that cost is usually paid by you, either deducted from the mortgage advance or added to the balance. That is not automatically a bad thing (these lenders take on harder files), but you should see the fee in writing and understand you are paying it, because on the private side the broker’s compensation and your cost are the same number.