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Jj, Home Buyer in California

Do 30 year fixed mortgage rates vary depending on the loan amount? Does a mortgage broker make more money if they sell a loan with a higher interest?

Asked by Jj, California Sat Jul 23, 2011

I'm seeing online quotes for 4.25% based on a $600K loan, however my mortgage broker gave me a quote for 4.75% and said the online quotes are lower because they are for loans under $417K, however when I ask for online quotes I am putting in that I need it for $600K and still getting the quote of 4.25% Do mortgage brokers get paid more commission if they sell a mortgage with a higher interest rate?

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"Anyplace you can get a mortgage (mortgage broker, bank, credit union, mortgage lender, etc.) makes more money offering higher interest rates than offering lower interest rates - mortgage broker included."

I usually agree with Shane but cannot do so on this one. Mortgage brokers cannot and are not paid based on interest rate. While this may have been true prior to April 6, 2011, it is not so anymore. A broker gets paid a percentage of the loan amount if they are paid by the lender. If they are paid a commission directly by you at funding, it is based on whatever you negotiate and still has nothing to do with the interest rate.

As for your question, It DOES make a difference on loan amount as to what rate you are offered assuming you have a competent loan officer. Assume for a moment that 4.25% rebated 1 point. At 600K, that is a $6000 credit. Depending on what the broker has their compensation set at, you could probably refinance for "free" or nearly free. On the other hand, if you had a $100K loan amount, you would only be working with a $1000 rebate and that does not go very far. In order to get to the same place with minimal out of pocket, you would have to increase the rate and thus increase the percentage rebated to you.

You should explore the 4.25% rates you are seeing because they are more correct than the 4.75 rates. I couldn't even charge you 4.75% if I wanted to on this loan, there would be too much credit.

To better understand how rates and credits work, read my blog entry here: http://www.trulia.com/blog/gvd/2010/08/understanding_interes…
Web Reference: http://WeFixRates.Com
1 vote Thank Flag Link Mon Jul 25, 2011
Gregorio, in the simplest of explanations, it is still a higher rate for more money being made.

Mortgage broker #1 sets their comp plan at 225bps - they are going to be offering the borrower a 4.75% rate (let's just say)
Mortgage broker #2 sets their comp plan at 300bps - they are going to be offering the borrower a 5.00% rate (let's just say)

That is "making more money for the higher rate".

A mortgage broker can't switch between the two, being able to quote a low profit margin and then increase the profit margin/spread in rates between what the borrower qualifies for and the rate they actually receive (aka the "bait & switch"), but in the above example if Borrower A went to MB#1 & MB#2 which say have the same exact relationship with a wholesale lender, but they just set different comp plans, MB#2 is making more money for the higher rate they would offer.

Same can be applied to any sort of set up you get a mortgage from - BANK#1 has the same secondary market relationship as BANK#2, but BANK#1 has lower interest rates than BANK#2, then BANK#2 is making more money from that secondary market source than BANK#1. Assuming the individual loan officer compensation is the same at both banks, the individual loan officer doesn't see any of the "more money", but the bank itself does.

If the question was, "Assuming interest rates do not change, can a mortgage broker increase the rate over the initial rate quoted in an effort solely to make money money for either their company or themselves individually?", then I would agree with your answer that they could not.
0 votes Thank Flag Link Mon Jul 25, 2011
As of last Friday you couldn't get a $417k loan for 4.25% unless you paid discount points. The person that quoted you 4.75% if it included their origination fees is right. Most brokers have their origination fee paid by the lender instead of by the borrower. Mortgage brokers have to tell their lenders what they earn on a loan. All loans have to be the same. Can't charge any more or any less. The main concern you should have instead of rates is the quality of broker you will choose.

Happy funding, Rudi
Web Reference: http://www.umboc.com
0 votes Thank Flag Link Sun Jul 24, 2011
Market rates change everyday, the rate you were quoted today could be at no cost, but tomorrow the market could change and demand a cost for the same rate the next day. Credit score, loan amount, closing cost can effect the type of rate a bank is willing to give you, so make sure you ask if the closing cost is covered in the cost of the interest rate quoted. I would recommend that you sign up for continuous credit monitoring,so you are aware of any errors pulling down the credit score and protect yourself from the 5FIVE areas of Identity theft. Do everything you can to keep a good credit score will shopping for a loan, the Fair Credit Reporting Act of 1971 can help increase your credit score!! Check money back credit repair fast . com for low cost, but fast results to maximize your credit score!
0 votes Thank Flag Link Sat Jul 23, 2011
Get a second oponion / quote form a local, experienced lender in your aear that provides you with their references, etc!
0 votes Thank Flag Link Sat Jul 23, 2011
Q: Do 30 year fixed mortgage rates vary depending on the loan amount?
A: The price of the interest rate can (but doesn't always) vary depending on the loan amount.

Q: Does a mortgage broker make more money if they sell a loan with a higher interest?
A: Anyplace you can get a mortgage (mortgage broker, bank, credit union, mortgage lender, etc.) makes more money offering higher interest rates than offering lower interest rates - mortgage broker included. The higher the interest rate, the more profit "on the back" is being made (vs. "on the front", which is what origination fees are).

The individual loan officer themselves do not make any more money by giving you a higher rate than you actually qualify for, they can't as that has been prohibited beginning on April 6th 2011, but the company they work for can make more money. The individual loan officer cannot be compensated based on the interest rate/terms of your loan, their compensation remains the same. However it can be based on the loan amount, as well as other factors, just not the interest rate & fees being charged.

Tip: You'll do much better (as in you'll actually be able to get the interest rates you are quoted) if you get your mortgage rate quotes from individuals rather than internet websites. It's natural to have the questions you have, but if you select your loan officer based on character rather than who is quoting the lowest interest rates & fees, you'll increase your likelihood of ending up with the best all around deal (rate, fees, closing on time).
0 votes Thank Flag Link Sat Jul 23, 2011
Jj, yes the interest rate for a 30 year fixed mortgage does vary depending on the loan amount. Loans under $417K will carry a lower interest rate than those over $417K. But there will also be other areas that the lender/mortgage broker look at to determine your interest rate including but not limited to your credit score and your loan to value %. The higher your credit score and the lower your loan to value %, the lower your interest rate.

Assuming your credit scores are excellent and your loan to value is low that you would qualify for the par rate or close to it without any adjustments, then your mortgage broker could make more money if they sell you a loan with an interest rate higher than par rate. Keep in mind that the money your mortgage broker would make on the loan should be disclosed on the GFE (good faith estimate). Assuming you don't change your loan terms at all during the process, the broker cannot make more than what was originally disclosed to you.
0 votes Thank Flag Link Sat Jul 23, 2011
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