How does ‘Fee for Service’ work on FairBroker®?

Fee for Service‘ is a unique model introduced by the FairBroker® platform for borrowers to work with mortgage brokers. In this model, the mortgage broker shares 100% of the commission received from the lender to the borrower and only charges a fixed fee for the service provided.

100% of broker commission passed on to the borrower

There are two important reasons why FairBroker® introduced ‘Fee for Service’

  1. Unbiased mortgage advice
  2. Reduce effective interest rate to the borrower

Unbiased mortgage advice

The mortgage broker works for the borrower but receives compensation from the lender—this arrangement between a mortgage broker and lender results in a conflict of interest.

What complicates the arrangement even further is the different compensation paid by lenders. As a result, the mortgage broker may be biased towards a lender with higher compensation even though the mortgage offered by the lender is unsuitable to the borrower. The Best Interest Duty legislation introduced by the regulator does not help either due to its limitations.

The ‘Fee for Service‘ model championed by FairBroker® ensures the mortgage broker passes on the compensation received from the lender to the borrower entirely. In return, the mortgage broker is paid a fixed fee by the borrower. In addition, this model ensures the mortgage broker is not biased in their recommendation of mortgage to the borrower.

Reduce effective interest rate to the borrower

The lenders pay the mortgage brokers for selling their mortgage. The compensation paid by lenders is passed on to the borrower in the form of an increased interest rate.

The ‘Fee for Service’ model championed by FairBroker® turns the model around. The compensation received by the mortgage broker is passed on to the borrower negating any increase in interest rate caused due to the compensation paid to the mortgage broker.

Mortgage Broker Fees

In the ‘Fee for Service’ model, the mortgage broker, when making an offer to the borrower on the FairBroker® platform, provides details of the amount of compensation received from the lender. Then, if the borrower settles the mortgage through the mortgage broker, the broker will deduct the fees from the compensation paid by the lender before passing it on to the borrower. Effectively, the borrower is not paying any out of pocket fees to the mortgage broker.

As an example, if the mortgage broker receives $5,200 as compensation from the lender for settling an $800,000 mortgage, the following is the split between the mortgage broker and the borrower.

  • Compensation from Lender – $5,200
  • Broker Fee – $2,000 (if PAYG plan)
  • Borrower Share – $3,700

When will the borrower get their share of the commission?

Most lenders pay mortgage brokers anywhere between 1 to 3 months after the settlement of the mortgage. There are clawback rules that lenders follow. The lenders demand mortgage broker return the commission amount if the borrower refinances their mortgage within the clawback period (varies from lender to lender. typically 2 years for most lenders).

As a result,

  • some mortgage brokers may share commission as soon as they receive it from lenders. In such a situation, the mortgage broker may require the borrower to sign an agreement to return the commission share to the mortgage broker if the borrower refinances their mortgage before the lender clawback period expires
  • some mortgage brokers may share commission after the expiry of the lender clawback period

Typically most mortgage brokers on FairBroker® share commission as soon as they receive it from lenders. Please note, FairBroker® does not facilitate or dictate the terms of commission share agreement between mortgage broker and borrower.

It is our mission to ensure transparency and the best outcome for the borrower and hard-working mortgage broker. Looking for a mortgage or looking to refinance your existing mortgage? Create a deal request on FairBroker® and get unbiased mortgage advice and assured commission share from mortgage brokers.

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