Have you ever wondered how a mortgage lender gets paid? It’s a common question when it comes to buying a property but also one that often seems to confuse the average homeowner. Mortgage lenders have various avenues in which they can make money, from origination fees and closing fees to underwriting and application processing.
In this article, we take a closer look at the process and how mortgage lenders make their money.
What is a Mortgage Lender Exactly?
A mortgage lender is an institution that provides and underwrites loans for homebuyers. Each mortgage lender has a different set of rules or guidelines which they use to assess the risk in terms of providing an individual with a home loan.
More specifically, a mortgage lender will decide on the interest rate, term and payment schedule for home loans. This institution will also lay out a specific set of terms by which the homeowner must abide for the duration of the loan.
But how does a mortgage lender get paid?
How a Mortgage Lender Gets Paid
A mortgage lender can get paid in many different ways such as yield spread premiums, closing costs and selling mortgage backed securities. Let’s take a quick look at some of the most common ways in which a mortgage lender will get paid:
Yield Spread – A yield spread premium is the difference between an interest rate provided by a lender and the rate that lenders pay to replace that money. Mortgage lenders can account for this amount/difference as a source of income.
Origination Fee – A lender will charge a fee to borrowers for creating a mortgage loan. This fee sometimes includes the application or processing fee and other admin services and often increases over time.
Closing Costs – Many lenders will not only charge an origination fee but also an application fee, underwriting fee and processing fee. You should always check the extent of these fees with a lender before going ahead with a loan.
Discount Points – Discount points are used to buy down the interest rate of a mortgage. Homebuyers can pay upfront for discount points in order to bring down the amount they repay each month. The impact in this respect will depend on the type of mortgage, market conditions and the actual lender.
Mortgage-Backed Securities – Mortgage lenders usually group loans together and place them in a mortgage back security. These are then sold for profit to investors, funds etc and provide instant capital to the lender in return.
Loan Servicing – Lenders can also earn money by servicing loans. For instance, if a mortgage backed security is sold to an investor who cannot process the payments, the lender can continue to perform this task on behalf of the investor in return for a percentage of the payment.
As you can see, a mortgage lender will have many different forms of revenue and understanding the significance of these fees can even help save you thousands on your monthly repayments. At City Creek Mortgage all of our loan officers are salaried. They are compensated the same regardless of the loan you choose. Because of that, we provide our customers the loan that will help them save the most money.
If you’re ready to save thousands by not paying fatty commissions that end up in the pocket of your lender, contact City Creek Mortgage today.