Aug 284 min read

Mortgage Broker Costs - Does A Mortgage Broker Cost You Money?

When you're in the market for a new home or looking to refinance your mortgage, you might wonder whether using a mortgage broker could help.

However, when most people hear the term "Mortgage Broker," they associate it with high fees. This article breaks down the costs of using a mortgage broker and helps you understand the fees associated with mortgage applications.

Is This Mortgage Broker Article For Me?

This article is for anyone considering using a mortgage broker but unsure about the costs involved.

Understanding how mortgage brokers get paid is crucial to making an informed decision. As a mortgage professional who has worked in a bank and as a mortgage broker (my current role) for over five years, I'll be able to help you identify the fees associated with mortgage applications using a mortgage broker. Save this article for later so you can return to it as a reference point if you do use a broker.

That way, you'll have a leg to stand on if they charge you fees when they shouldn't or if they charge more than you expected to pay.

How Mortgage Brokers Get Paid

Mortgage brokers typically do not charge you directly for their services if you get approved by an "A" lender (big banks, monolines, etc.).

Instead, they are paid by the lender when you finalize your mortgage. The fee is a commission based on the mortgage amount, generally a small percentage (e.g., 0.5% to 1%). This means that, in most cases, using a mortgage broker won't cost you out of pocket. A few things determine the percentage they end up being paid. First, the lender they end up getting your mortgage approved with. Second, the mortgage amount you apply for. And third, the type of mortgage you take (fixed, variable, 3-year, 5-year, etc.)

One important note: regardless of what is best for the broker, ensure you do what is best for your mortgage and choose the right mortgage type and term. Don't take a different mortgage term or interest rate type to help out the broker. It's their job to do the best for you, not vice versa. If you want to learn more about how they get paid, check out our article here.

What If I'm Not Approved By An "A" Lender?

If, for whatever reason, your mortgage broker can't get you approved with an "A" lender, you'll likely be going with a "B" lender or private lender.

If this is the case, the mortgage broker will likely charge you a fee because they either don't get paid by the "B" lender, or it's much smaller than what the "A" lender offers. This fee can vary, but generally, the broker will charge you 1-2% of the mortgage balance for "B" files. In addition to the broker fee, the lender normally charges a 1% fee. So, total fees are in the range of 2-3% of the mortgage balance.

That is for "B" lenders.

You will likely pay more than the 2-3% for private lenders. We've seen private lenders charge 2-6% of the mortgage balance. On top of that, we add our broker fee, either matching the lender fee or reducing it depending on the difficulty of the mortgage file.

Broker fees for privates are expensive, but it's the price of finding private lenders to work with us and get our clients approved.

When Can There Be Additional Costs?

Additional costs will include appraisal and legal fees.

These aren't mortgage broker fees but mortgage application fees. Mortgage brokers don't make money off of the appraisal and legal fees. Depending on the property, most residential appraisals range from $275 to $700. If you have a rural farm or commercial property, you will be looking in the $1,500 plus range.

Legal fees will vary depending on the transaction type.

"A" and "B" mortgage legal fees will be in the $1,000 to $2,000 range. Private mortgage legal fees will be in the $3,000 to $6,000 range because you are also paying for the private lender's lawyer.

Here's a quick breakdown using a real $250,000 mortgage example going through a "B" lender:

	Fee
Fee Type
Broker Fee (1%)	$2,500
Lender Fee (1%)	$2,500
Appraisal Fee	$300
Legal Fees	$1,500
Total Mortgage Cost	$6,800

This $6,800 likely seems expensive, and it is.

The good news is that if you keep your credit score up and make an average income, you should be able to qualify for an "A" lender and avoid all unnecessary lender and broker fees. Plus, if you have enough home equity available, you can use that to pay for these costs.

That way, you don't have to come up with the money from your pocket.

Final Thoughts On Mortgage Broker Costs And Fees

In most cases, working with a mortgage broker won’t cost you extra money and can save you time and stress by finding the best possible mortgage deal.

The key is asking the right questions and ensuring you do your best to maintain your credit score and remain employed. When it comes to navigating mortgage applications, using a mortgage broker is often a smart move. The potential for savings, expert guidance, and convenience far outweigh any minimal costs that might arise.

Curious about whether you should use a mortgage broker or a bank? Check out our article here to see the pros and cons of both!

Summary (TL;DR)

Mortgage brokers typically don't charge you directly if you qualify with an "A" lender; the lender pays their commission.
If you need a "B" lender or private lender, expect fees around 2-6% of the mortgage balance, plus appraisal and legal fees.
Using a mortgage broker can save time, stress, and money, especially if you ask the right questions and maintain good credit.

Before You Go

If you enjoyed this article, be sure to leave a like and comment to let us know so we can continue to create similar content. Also, feel free to download our mortgage mastery kit below with mortgage calculators, real estate information guides and more.