Most people feel pretty uncomfortable asking someone else about their income. Still, there’s one question you should feel comfortable asking the person or company that helps you obtain your mortgage: how do you get paid?
I’m always glad to answer this question.
How does a mortgage professional get paid:
There are two ways mortgage originators get paid. First, we get paid from the origination fee that you pay for the administrative costs of setting up your loan. The origination fee is a standard part of every loan and doesn’t change much depending on what type of loan you get.
The second way mortgage originators get paid is a bit more complicated. It’s called a yield spread premium (YSP), or “lender credit”. You see, your mortgage person gets a bonus from the bank if you accept a loan with a higher interest rate than what you qualify for. You might accept a higher interest rate because it means lower costs up front – a lower down payment, for example. But in the long run, a higher interest rate benefits the bank, not you.
An irresponsible mortgage person might try to steer you towards a higher interest rate loan, without telling you about the yield spread premium (or extra commission) they are getting. You might even have no idea that you could get a lower interest rate! A responsible mortgage pro will always explain the yield spread premium, tell you exactly how they get paid, tell you about the many types of loans available and the rates you qualify for and give ` the choice of what sort of loan you want: a regular cost, low-rate loan, or a ‘low cost’ loan with a higher rate?
But I go over and above even that.
At Stewardship, we always give the Yield Spread Premium back to the customer. I want to make sure I’m able to advise my customers objectively about their options and can pick what makes the most sense for them financially, without my own financial considerations getting in the way.