Think of your rate as two parts:
- The lender’s base rate
- The broker’s commission (how we get paid)
We’ll use a simple example:
- Lender’s base rate today: 6%
Step 1: Lender sets a base rate
- The lender looks at the market and issues a base rate (example: 6%).
- This is the starting point before any broker commission or credits.
Step 2: Broker pay option #1 – Paid out of pocket
- You pay the broker directly as a percentage of the loan amount.
- Primary homes: usually 0–3% of the loan amount.
- Investment properties: can be up to 5%.
- Your rate can stay closer to the original 6% because the commission isn’t built into the rate.
Step 3: Broker pay option #2 – Built into the rate
Instead of paying us out of pocket, we can earn commission through a higher rate.
- Base rate: 6.00%
- Broker wants about 1%: rate might become 6.25%
- Broker wants about 2%: rate might become 6.50%
- Broker wants about 3%: rate might become 6.75%
You pay nothing (or less) at closing, but:
- The higher rate lasts for the life of the loan.
- Your monthly payment and total interest go up.
Step 4: Broker pay option #3 – Mix of out of pocket + rate
- You can split it.
- Example: pay a small fee at closing, and take a slightly higher rate.
- This lets you balance cash needed now vs. payment over time.
Step 5: Broker pay option #4 – Fees
There are two types of fees:
- Standard lender fees (usually go to the lender):
- LLC review fee (example: $495)
- Underwriting fee (example: $1,895)
- Additional broker-related fees (may go to the broker):
- Processing fee
- Broker admin fee
- Attorney or doc prep fees (if not truly required by the lender)
Always check your fee sheet and Loan Estimate to see who each fee is going to.
Step 6: Lender credits and “extra” margin
Sometimes the lender’s actual market rate doesn’t match the “menu” of rates they offer.
Example:
- True market rate today: 5.95%
- Lender only offers: 5.875% or 6.000%
In that case:
- At 6.000%, the lender may give a lender credit (money back toward your closing costs).
- The broker can pass that credit to you, or in some cases keep part or all of it as additional compensation.