The cost of mortgage advice can vary greatly; it’s sometimes £300-£600 or sometimes there is no ‘direct’ fee at all. Some brokers could charge a fee and then receive a commission, paid by the lender – beware.
Let’s blow open the whole topic of ‘mortgage broker fees’ with complete transparency so everyone understands. In this complete guide to mortgage broker fees we also include the results of our very own sneaky homegrown research project, involving using a broker vs going direct…
Read on and avoid getting ripped off!
Short on time – here’s the Bottom Line
Mortgage brokers can earn their ‘fee’ in two different ways;
- You pay them an upfront fee [usually somewhere between £300-£600 or
- You can pay them nothing and they can earn their fees in commission paid to them from the lender. This costs you, nothing.
- Our direct research showed that going through a broker rather than straight to the lender yourself, is much cheaper. Simply – brokers can obtain far better deals.
- Online mortgage brokers tend to be the cheapest. Operating online they are able to cut costs and pass those savings along to customers.
- A mortgage broker’s job is to find the best mortgage for you, do all the paperwork for you to obtain that mortgage and manage the whole process.
Types of Mortgage Broker Fees
Upfront Fees
An upfront fee is as the name suggests, its a fee paid directly from you to the broker BEFORE they do anything.
This fee could be known as a ‘finders fee’ or ‘arrangement fee’ as the broker then ‘finds’ a mortgage for you. Upfront fees paid to brokers should be agreed in advance and are usually a set amount – regardless of the mortgage value.
Commission Based Fees
A commission based fee will ‘directly’ cost you nothing. Commission is paid to the broker by the mortgage lender.
Now, I said directly, because what can happen is some lenders to ‘recoup’ this money, they have paid to the broker, can actually absorb this into your mortgage.
Meaning although you would never notice this, you could be paying slightly more back to the lender because of it.
Fee-Free Mortgage Brokers
With fee free mortgage brokers, they clearly state they take no fee, directly from you [although it’s always worth checking the small print.]
Do fee free mortgage brokers not make any money then?
No, they do get paid, they are in essence commission based brokers, as they receive a commission. That commission though is paid directly from the lender.
Which Mortgage Broker Fee Type is Best?
Which is best, well, ‘commission versus fees’ is what is really being asked here. It’s worth pointing out that a commission free and a fee free broker doesn’t exist.
Why? Because there are no earnings.
Which is best and why – a broker who is ‘paid’ directly with a fee or indirectly through commission?
Fee based is popular as it usually involves them visiting your house, or you visit their office and the broker handles the paperwork. You aren’t paying them for nothing, for their fee comes the work to find and organise your mortgage.
But the issue here is, what happens if you don’t get accepted for a mortgage? What happens to that fee you’ve paid. This is one of the questions you need to ask a broker early on..
When do you pay a mortgage broker?
The upfront fee, yes you’ve guessed it, comes before the mortgage is obtained.
With a broker being paid commission by the mortgage lender this is typically after the client has been accepted for the mortgage.
Sure, they can have all the same work to do as an upfront fee broker, for instance finding the mortgage, paperwork etc but the crucial bit is – the fee comes after.
Ethics
Question: Regardless of fees or commission; if they both brokers can find a good mortgage deal for me, then are they the same?
Answer: So, then it comes down to conflict of interest, do all brokers just try to sell the mortgages they will earn the biggest fee from? Read on to find out more…
Mortgage Broker Average Costs
Upfront fee brokers will typically charge £400-£500.
The money earned by a commission broker is usually around 0.35-0.5% of the total mortgage.
So let’s put that into an example with a £200,000 mortgage:
0.35% of £200,000 = £700
Again, remember that the £700 commission is not paid by you, it’s paid to the broker from the mortgage lender.
Difference in brokers earnings based on mortgage size.
A broker can earn commission as a percentage of the mortgage size. The larger the mortgage the more commission is earned.
Whereas an upfront fee could be fixed, regardless of mortgage size. These are all things to bear in mind when considering which broker to use.
Is it Worth using a Mortgage Broker?
Should I go with a Mortgage Broker or Bank?
A broker, definitely a broker – read this to find out why:
So we conducted our own study to see which is cheaper, using a broker or going direct, because no one likes to pay for something when they don’t need to!
Before conducting this study, we would have said that it must be cheaper going direct, surely? Agree with me here or not?
The mission was clear, we approach a mortgage broker, get a deal for a mortgage and then go directly to that same mortgage company with the same details and see if we can get it any cheaper ourselves…simple enough.
Ok, so, after obtaining our mortgage deal through a broker from a very well known mortgage lender [we will leave names out of this for the time being] but let’s just say they are the largest mortgage lender in the UK and are in fact a building society not a bank.
So now all we had to do was go directly to that same mortgage lender and give those exact same details to see the result..
For transparency the details we provided are below:
We said we were first time buyers with a 10% deposit, looking to borrow £230,000 as we wanted to buy a property worth around £250,000. Sounds simple enough so far.
The mortgage term was set at 25 years, pretty standard. But then we wanted to drop a spanner in the works, a slight curved ball, as we thought why not make things interesting…
So we then said we wanted the mortgage deal fixed for 5 years and don’t want to pay any ‘product’ fees. Product fees are fees charged by the bank for mortgage. These are most commonly £999.
The Results – So Who Really is Cheaper?
The broker won hands down! Seriously. Let me just explain that for those still catching their breath. The broker was able to secure us a mortgage at a better interest rate than I was able to get going directly – to the same lender myself. Unbelievable!
But is it really that unbelievable?
I suppose if brokers couldn’t save you any money there wouldn’t be any brokers as they would have put out of business.
For those unsure what a better interest rate means, it means a lower interest rate. A lower interest means the total mortgage is ‘cheaper’ over the whole term and that makes our monthly repayments less.
We thought that the broker ‘win’ was maybe a one off. We were not convinced, so went back to the brokers list of lenders and now choose the second one down on the list. This time it was a very well known high street bank.
Same detail as before, we go directly to the bank, give them all the same details and sit and wait for the results.
Well guess what, the broker was cheaper than going direct, for the 2nd time around!
Ok, after that, I’m now convinced.
It seems like brokers can get deals that mortgage lenders won’t give out directly to customers.
Here’s another reason to use a Mortgage Broker:
Time – that whole process of giving our details to the two lenders was time consuming. So imagine doing that 10 times if you wanted to compare 10 different mortgage deals.
It’s far more efficient to give your details to one broker, let them do the work and compare, sometimes up to 90 mortgage deals, to find you the best one.
Independent Mortgage Advisor Costs
Independent simply means that they are free from any ties to one specific lender. Any good mortgage broker should be independent. This means they can search the whole market to find you the best deal, not just a limited number of mortgage lenders.
Their earnings are generally made up by commission paid directly from the lender or sometimes they can charge you an upfront fee. Usually this is dependent upon what you require and what you ask of them. Be flexible and always think about negotiating rates.
What Mortgage Brokers Do?
- Mortgage brokers will take all of your details and go and source the best mortgage deal for you. [These details will be the amount you are looking to borrow, the size of your deposit, all your current debts and financial obligations etc]
- They will then come back to you with the best interest rate they can find. They then give you all the details about the mortgage and this includes the monthly repayment cost.
- They will then submit all the required paperwork to the lender, oversee your mortgage application and ensure all deadlines are met.
How do I find a mortgage broker near me?
Jump straight onto google and do a search. Remember that usually the best deals are found with online mortgage brokers. They don’t need physical office space or the staff to run the office, meaning they are much cheaper.
In Summary
Either pay a broker an upfront fee or no fee at all. With a no fee broker they earn commission from the lender meaning you don’t pay them a penny. But be clear with the broker and ask how and what they are earning. Written in an email is best.
Online brokers are typically cheaper, and using a broker is even cheaper still versus going direct to a bank or building society. Again, because brokers can access better rates from lenders than ‘ordinary’ customers can. Using a broker, you save a whole lot of time as they handle the application and all the details for you.