Finance brokers, also known as mortgage brokers, arrange loans for their clients for a fee. The fee is paid by the lender or the borrower, or both. Finance brokers who specialize in arranging investment property loans or home loans are known as mortgage brokers. Derwent Finance has highly qualified finance brokers who will help you get an investment property loan or a home loan in Hobart.
How Do Finance Brokers Get Paid?
For most finance brokers, the payment is done on a commission basis. It means that they receive a commission for every successful mortgage they complete for their clients.
The finance broker can also charge a fee for his/her services to arrange the loan and advise the client accordingly. The fee can be a percentage of the loan amount, or it can be a fixed fee.
However, most finance brokers are not paid if they are unsuccessful in arranging a loan for their clients. They only receive their payment after successfully arranging a loan. A professional finance broker provides their individual fees’ full breakdown on their first meeting with a client.
How Much Do They Make?
Finance brokers’ commissions differ between individual brokers and banks. Nevertheless, the normal commission ranges between 0.5% to 1.2% of the total loan amount. The actual percentage depends on the type and terms of the mortgage.
All in all, after a borrower signs his/her mortgage contract, the lender pays the finance broker an upfront commission. The lender may also pay the broker other fees. Other forms of commission structures are:
- Renewal Fees
Whenever a borrower renews his/her loan with the lender; there are fees paid to the original finance broker. These fees are referred to as renewal fees. Even though renewal fees increase the likelihood of your finance broker convincing you to renew your loan with a current lender, he/she still gets paid when you renew with another lender. Regardless of your broker’s pay, it is crucial to compare rates at renewal time.
- Trailer Fees
These are fees that the finance broker receives overtime because the borrower stays with his current lender. Trailer fees are usually paid in exchange for a small upfront commission. They are structured this way to discourage finance brokers from encouraging borrowers to switch to different lenders, as doing so does not always favor the borrowers.
Do You Pay Finance Brokers Directly?
Even though most finance brokers require their lenders to pay them directly, this is not always the case. In the case of a remortgage where the broker fee gets added to the mortgage, the lender receives your broker’s fee and transfers it to them together with their commission.
For success or upfront fees, they usually get transferred directly to the advisor’s company. However, it is a must it be set out in writing.
It is vital to discuss with your broker the payment method. Where you are unsure about how your broker reached their amount or fees, ask for a detailed breakdown.
Roles of Finance Brokers
Finance brokers charge fees for providing services to their clients. These services include:
- Finding an ideal mortgage or other types of loans that suit the client’s budget by calculating their affordability
- Finding their clients the best deals possible that will save them money by comparing the whole market
- Progressing a client’s mortgage from the beginning to the end. Often, they work with solicitors to tackle the tricky cases
- Researching all the necessary information about different lenders before applying for a loan and enlighten you on all the advantage and disadvantages you should consider
- Reading and highlighting any points in the terms and conditions of your mortgage agreement that can be unfavorable for their client in the future
- Filling out applications and overseeing them on behalf of their clients to save them time
Are Finance Brokers Worth the Cost?
In most cases, good financial brokers will be able to make up for their clients’ indirect cost of commission by finding them the best deals possible with lower rates. Brokers can access rates that would be harder to find on the retail market. If your broker is good, they will have your best interests and find you lower rates.
Even though we cannot say that acquiring a loan through a finance broker will make the commission you pay worthwhile, it is advisable to consult different finance brokers and compare their deals. Most finance brokers do not charge for consultation. These consultations can prove valuable in getting insight into how different brokers might be ideal for you.