By Mike Baker | The Rate Shop | NMLS #259076
Does a higher interest rate mean a bigger paycheck for your loan officer?
Generally, a loan originator cannot be paid more simply because your mortgage has a higher interest rate. In my business, my compensation is set ahead of time. Choosing a higher interest rate does not increase what I earn on your loan.
But that does not mean every lender will offer you the same interest rate or the same fees.
Those are two different things, and understanding the difference can help you shop with a lot more confidence.
My compensation and a lender's profit margin are not the same thing
A mortgage company has expenses to cover and a business to run. That might include offices, employee salaries, benefits, support staff, and the profit the company wants to earn.
Those costs and profit goals can affect the interest rates and fees it offers. All else being equal, a company needing a larger margin has less room to offer a competitive deal.
That is different from a loan officer deciding, “I think I can charge this buyer a higher interest rate and make more money.”
Federal loan originator compensation rules generally prohibit pay based on the loan's interest rate or other loan terms. These protections are part of the changes that followed the financial crisis.
In plain English: I do not get to increase my paycheck by putting you into a higher interest rate.
If the lender pays me, where does that money come from?
The lender pays my company on the lender-paid loans I arrange. That does not mean I am working for free, or that the money appears out of thin air.
The cost of that compensation is built into the loan's economics, including the interest rate offered.
Think about buying a car. The dealership's margin is built into the price. You might not write a separate check labeled “dealership profit,” but that does not mean the dealership is giving the car away at cost.
Similar idea here.
“The lender pays me” is an explanation of who pays my compensation. It is not a reason to stop comparing the total deal.
Do I earn more if you take a lender credit or pay points?
No. My preset compensation on your loan stays the same.
What changes is the balance between your interest rate and your upfront costs:
Pay discount points: Spend more at closing to get a lower interest rate.
Choose an option without discount points: Compare the interest rate and the remaining fees without paying extra specifically to buy down the rate.
Take a rate-based lender credit: Accept a higher interest rate in exchange for help with closing costs.
Those are choices about your money, not a way for me to increase my compensation. Discount points are not an extra commission paid to me.
The CFPB explains this tradeoff between points and lender credits. The question is which available option fits your budget and how long you expect to keep the loan.
Sometimes keeping more cash available at closing matters most. Sometimes a lower monthly payment is the priority. We can put the options next to each other and talk through them.
Isn't going straight to a bank cheaper than using a broker?
A bank has loan officers to pay too. It also has its own overhead.
Using a mortgage broker does not automatically add an extra layer of costs that makes your loan more expensive.
The wholesale lenders I work with offer interest rates through their broker channel. They receive business through brokers like me that they might not otherwise reach.
My approach is to keep my own expenses low, shop those lenders, and look for savings I can pass along in lower interest rates, lower fees, or both.
I named the company The Rate Shop for a reason.
I start by shopping for the lowest interest rate and costs available for your situation. Then I check the lender's guidelines and ability to meet your closing timeline. My compensation is the same across the wholesale lenders I use.
The useful comparison is the actual offer in front of you. Interest rate AND fees. Not just whether the company calls itself a bank, a lender, or a broker.
My article about mortgage rate matching explains why the same interest rate can still come with very different costs.
Why I put a cap on my compensation
There's no need for greed.
At a certain point, I have made enough on a loan. A bigger loan does not necessarily mean more work.
That is why I have a maximum compensation amount in place. Once that cap applies, I want those savings reflected in what I can offer the client.
It really is that simple.
Why is broker compensation listed on my closing paperwork?
Because you should be able to see it.
On a lender-paid loan like the ones I am describing, the disclosed lender-paid compensation is not another fee being added to your borrower-paid closing costs.
The Closing Disclosure rules identify creditor-paid broker compensation as paid by others. Look at who is paying a charge, not just whether a number appears on the page.
I would rather explain that number than have you wondering about it. Transparency matters, especially in an industry where people have heard plenty of stories that make them skeptical.
What are you getting beyond someone shopping interest rates?
A lot of the work happens before you ever make an offer.
I review income, assets, and credit during preapproval so we can identify problems early. When you find a house, I want your offer backed by a file we have actually worked through.
That gives the seller and their agent more confidence in the buyer behind the preapproval letter. It also helps us avoid preventable surprises on the way to closing.
You can read more about how lenders verify employment and why doing the homework upfront matters.
You do not have to be ready to buy today
When someone in my home market of the Kansas City Metro tells me they are six months or a year away from buying, I still want to have that conversation.
We can look at credit, income, savings, and the payment that feels comfortable. We can identify things to work on now and build a savings plan around the down payment they may actually need.
I would rather help you prepare today than have you spend a year guessing, only to find out there was something you could have addressed months ago.
And if working part time is one of your concerns, a part-time job does not automatically rule out buying a home.
I work for YOU
My compensation is set. I do not earn more by putting you into a higher interest rate, and I do not get paid for originating your loan until it closes.
I want to find the best fit for you and your family. I want you to feel good about the experience. And I want to earn the kind of trust that has you referring your friends, family, and coworkers.
That means doing the work, explaining the options, and being someone you feel comfortable calling.
Conversations are free.
If you want help understanding an offer, you can send me your Loan Estimate for review or schedule a mortgage consultation.
Questions buyers ask about mortgage broker compensation
Can a loan officer charge a higher interest rate just to earn more?
Federal rules generally prohibit loan originator compensation based on the loan's interest rate. In my business, a higher interest rate does not increase my preset compensation on your loan.
Does lender-paid mean the broker is free?
No. The lender pays the broker, but the cost is built into the loan's economics. Compare the interest rate and fees rather than assuming lender-paid means there is no cost.
Will paying discount points change what Mike earns?
No. On the lender-paid loans described here, points or a rate-based lender credit change the buyer's interest rate and closing costs, not my preset compensation.
Does set compensation mean the same dollar amount on every loan?
Not necessarily. A preset compensation structure can depend on the loan amount and include a cap. The distinction is that I do not increase my compensation because you choose a higher interest rate.
