I'll answer your last question first...broker or banker? Who ever offers you a reasonable rate and at fair closing costs.
Brokers get paid through the Loan Origination Fee on the Good Faith Estimate which will range between 1% - 2% (some brokers charge more). They'll also charge a Processing Fee which ranges between $450 - $650 to pay their processor/loan coordinator. Some brokers might additionally charge an Administration Fee or a Transaction Coordinator fee which could range between an additional $450 - $650. Now you may or may not agree with this particular fee but the fact is, it is assessed to cover the overhead expense in keeping the business open. You might ask, isn't that what the origination fee is for? Well, yes and no. Unless you're the broker, you have to split the profits from the origination fee and you don't get a cent from the Processing or Admin. Fees.
Do you pay a higher interest rate for using a broker? Not necessarily. The fact is, whether you use a broker or a banker, the rate you pay might be higher and it might be less. It's ultimately up to the loan originator writing up your loan file. On one day a broker might charge you a lower rate while the next day a banker charges you the lower rate. It ultimately depends on the individual.
Does the financial institution give him a fee or a kick back (the broker)? For the sake of argument, let's say the par rate you're quoted today is 6%. A broker would offer you 6% at par which means all you're paying is the loan origination fee of 1.25% (I'm simply using 1.25 as an example here). As a Broker, I can sell you a higher rate, say 6.25 or 6.375% and the lending institution financing the money will pay me a rebate (also known as Yield Spread Premium) of an additional .75%+-. So in essence, by selling you the higher rate, I'd get paid 1.25% Origination Fee that I'm charging you but the bank would also pay me .75%+- for a total of 2% commission. The bank doesn't pay me the rebate out of the loan proceeds (such as the cash-out). But you are assessed a higher rate on your loan. *A note here: this Yield Spread Premium (YSP, or a.k.a. rebate) is disclosed on the Good Faith Estimate when working with a broker. When you work with a bank, they're not legally required to disclose YSP. This is why I say that you may or may not pay a higher rate with a broker than you would with a bank. You may very pay a higher rate with a bank and think you're getting a 6.25% at par when really the loan originator is getting a rebate.
I hope that answers some of your questions and understanding of the process. I can fax or email you a sample GFE if you'd like and we can review the costs associated to give you a guideline.
I also have a weblog at http://www.industry-report.com
Here, I'll write some posts detailing some of this discussion that I hope serves you as a resource. You might want to reference the Category section titled "Home Buying 101" for some recent articles on the mortgage application process.
All the Best!