Is It Typical for Mortgage Broker to Charge Fee on Refinance?
Investor · Member since 2018 · 260 posts · 74 votes
Is It Typical for Mortgage Broker to Charge Fee on Refinance?
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Nate HerndonPro Member
Lender · Springfield, MO · Member since 2023 · 277 posts · 195 votesIt doesn't sound wildly unreasonable coming from a broker. The lender-broker relationship is an important one and many good lenders will actually protect a broker by turning a client BACK to the broker if the client attempts to work directly with the lender (by circumnavigating the broker that introduced them).
For many of my clients, the programs that we utilize are wholesale and do not offer a retail arm that a client could reach directly out to refinance with.
In your case, if the broker is simply introducing you to the lender and is hands-off from that point, I think you have some ground to stand on to request a reduced fee for a refinance. If they are assisting you administratively with the entire loan process for both the purchase and refinance, then of course their fee is warranted in both cases.
14 Replies
- 2yNate HerndonPro MemberLender · Springfield, MO · Member since 2023 · 277 posts · 195 votes
It doesn't sound wildly unreasonable coming from a broker. The lender-broker relationship is an important one and many good lenders will actually protect a broker by turning a client BACK to the broker if the client attempts to work directly with the lender (by circumnavigating the broker that introduced them).
For many of my clients, the programs that we utilize are wholesale and do not offer a retail arm that a client could reach directly out to refinance with.
In your case, if the broker is simply introducing you to the lender and is hands-off from that point, I think you have some ground to stand on to request a reduced fee for a refinance. If they are assisting you administratively with the entire loan process for both the purchase and refinance, then of course their fee is warranted in both cases.
- 2yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Kim Hopkins:
Hello!
We have a great new mortgage broker but I was just reading his engagement letter and they want us to agree that we will pay them another fee if we REFINANCE with the lender they've introduced us to within 5 years from the effective date of the agreement.
We specifically went with one of their lenders that doesn't charge a prepayment penalty so we could refinance if rates are lowered in the next 1-2 years.
With this agreement, we pay them a fee when we close on the loan now.
Then if rates go down and we want to refinance with this lender, we owe them ANOTHER fee (they said it might be half of the full fee but still) on the refinance.
Is this standard? We like these guys a lot but it doesn't seem like they're contributing any work to the refinance and I'm surprised this is expected.
Thanks!
Kim
Hey Kim,
If this is a brokered transaction, most lenders will actually require you to go through the broker again (with or without a broker agreement). This is why many lenders will not contact the borrower and the broker will white label everything, to prevent this from happening. Most lenders actually have a wholesale channel set up for brokers to offer clients better terms/discounted fees (depending on the brokers volume with the lender).
A solid broker WILL contribute a significant amount of work for your refinance transaction. They must do a thorough job in presenting your file the cleanest way possible to get you signing ASAP.
LuxePrivate Investments LLC 572 Reviews - Lender · Phoenix Arizona · Member since 2018 · 89 posts · 51 votes2y
Quote from @Nate Herndon:
It doesn't sound wildly unreasonable coming from a broker. The lender-broker relationship is an important one and many good lenders will actually protect a broker by turning a client BACK to the broker if the client attempts to work directly with the lender (by circumnavigating the broker that introduced them).
For many of my clients, the programs that we utilize are wholesale and do not offer a retail arm that a client could reach directly out to refinance with.
In your case, if the broker is simply introducing you to the lender and is hands-off from that point, I think you have some ground to stand on to request a reduced fee for a refinance. If they are assisting you administratively with the entire loan process for both the purchase and refinance, then of course their fee is warranted in both cases.
I wouldn't say it is standard but I also wouldn't say it is unreasonable. The lender should refer back to the broker who brought them the client if they are reputable. The work around for it is to use a different lender when you refinance.
- 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Two things. I don't think borrowers truly understand how much work goes into a loan. We don't like to borrowers to see how the sausage is made, but there is a ton of work that goes into it. The stress can be overwhelming. Charging a fee for a refinance is more than reasonable. The other major thing that most people don't understand is that lenders have a clause called an "EPO"...an Early Pay Off clause which requires the broker to pay a lender back if the loan is paid off or refinanced within a certain period of time. Five years does sound like a very, very long time, but that's the only part of your post that I would question.
- Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes2y
@Kim Hopkins- thanks ...sounds clunky / cumbersome ...most lenders fo not do this ...consider using another lender
- Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes2y
In some states such as Arizona its not "enforceable" for a residential loan (commercial is another story).
- Investor · Member since 2018 · 260 posts · 74 votes2y
Quote from @Doug Smith:
Two things. I don't think borrowers truly understand how much work goes into a loan. We don't like to borrowers to see how the sausage is made, but there is a ton of work that goes into it. The stress can be overwhelming. Charging a fee for a refinance is more than reasonable. The other major thing that most people don't understand is that lenders have a clause called an "EPO"...an Early Pay Off clause which requires the broker to pay a lender back if the loan is paid off or refinanced within a certain period of time. Five years does sound like a very, very long time, but that's the only part of your post that I would question.
But the broker isn't doing any work for the refinance. We would literally be working directly with the bank...
- 2yDevin PetersonBusiness MemberLender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
Quote from @Kim Hopkins:
Quote from @Doug Smith:
Two things. I don't think borrowers truly understand how much work goes into a loan. We don't like to borrowers to see how the sausage is made, but there is a ton of work that goes into it. The stress can be overwhelming. Charging a fee for a refinance is more than reasonable. The other major thing that most people don't understand is that lenders have a clause called an "EPO"...an Early Pay Off clause which requires the broker to pay a lender back if the loan is paid off or refinanced within a certain period of time. Five years does sound like a very, very long time, but that's the only part of your post that I would question.
But the broker isn't doing any work for the refinance. We would literally be working directly with the bank...
If you are working through the lender that he broker originally introduced you to then they are all hands on that deal. If the broker has a contract with the bank/lender that once they've technically introduced your to the banks product, you are effectively the brokers client. This contract is to prevent poaching and working around the prior established agreement.
ProAlpha Capital56 Reviews - Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes2y
Brokers like to think they “own” you and will often try to lock you into future business. As a borrower, I wouldn’t even think of agreeing to anything like that. What reason do you have to believe that years from now, you will be dealing with the same individuals at this brokerage? What if they move firms? What assurance do you have that their service will be the same? If this lender wants to promise five years or fifty years worth of commissions to the broker for bringing you in, that’s between the two of them. They can agree to whatever they wish. You are beholden to no one.
All deals stand on their own and business must be continuously earned. If in the future you choose to work with the same broker, brokerage, and/or lender, then that’s a choice you can make at the time when they again earn your business.
Until then, it is not in your interest to lock yourself in. Of course, they could tell you to take a hike, but so long as they believe they can always provide the same excellent service that brings you back, they won’t.
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes2y
Quote from @Kim Hopkins:
Hello!
We have a great new mortgage broker but I was just reading his engagement letter and they want us to agree that we will pay them another fee if we REFINANCE with the lender they've introduced us to within 5 years from the effective date of the agreement.
We specifically went with one of their lenders that doesn't charge a prepayment penalty so we could refinance if rates are lowered in the next 1-2 years.
With this agreement, we pay them a fee when we close on the loan now.
Then if rates go down and we want to refinance with this lender, we owe them ANOTHER fee (they said it might be half of the full fee but still) on the refinance.
Is this standard? We like these guys a lot but it doesn't seem like they're contributing any work to the refinance and I'm surprised this is expected.
Thanks!
Kim
Yes of course,
- 2yRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
Quote from @Kim Hopkins:
Quote from @Doug Smith:
Two things. I don't think borrowers truly understand how much work goes into a loan. We don't like to borrowers to see how the sausage is made, but there is a ton of work that goes into it. The stress can be overwhelming. Charging a fee for a refinance is more than reasonable. The other major thing that most people don't understand is that lenders have a clause called an "EPO"...an Early Pay Off clause which requires the broker to pay a lender back if the loan is paid off or refinanced within a certain period of time. Five years does sound like a very, very long time, but that's the only part of your post that I would question.
But the broker isn't doing any work for the refinance. We would literally be working directly with the bank...
Just put both scenarios into the agreement. If they don't present a file or lift a finger, no fee.
If it was me, I'd send my information to the broker to let them earn the fee. Don't you want to shop the refi anyway?
- Investor · Member since 2018 · 260 posts · 74 votes2y
Thanks all! We negotiated that we could refinance this property with this lender directly (no broker fee) but any other work (including with this lender) in the next 5 years goes through them.
Yes, I agree we will likely go back to the broker to refinance anyways but this provides for the scenario when rates across the board are dramatically lower, in which case we can refinance with this lender hopefully easily with minimal fees.
Either way, we intend to give this broker lots of business and I think this is a fair resolution for both.
Thanks all!
- 2yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Doug Smith:
Two things. I don't think borrowers truly understand how much work goes into a loan. We don't like to borrowers to see how the sausage is made, but there is a ton of work that goes into it. The stress can be overwhelming. Charging a fee for a refinance is more than reasonable. The other major thing that most people don't understand is that lenders have a clause called an "EPO"...an Early Pay Off clause which requires the broker to pay a lender back if the loan is paid off or refinanced within a certain period of time. Five years does sound like a very, very long time, but that's the only part of your post that I would question.
the EPO is usually for Lender Paid transactions. Sounds like she is doing this borrower paid if the broker is having her do a fee agreement.
LuxePrivate Investments LLC 572 Reviews - 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Quote from @Erik Estrada:
Quote from @Doug Smith:
Two things. I don't think borrowers truly understand how much work goes into a loan. We don't like to borrowers to see how the sausage is made, but there is a ton of work that goes into it. The stress can be overwhelming. Charging a fee for a refinance is more than reasonable. The other major thing that most people don't understand is that lenders have a clause called an "EPO"...an Early Pay Off clause which requires the broker to pay a lender back if the loan is paid off or refinanced within a certain period of time. Five years does sound like a very, very long time, but that's the only part of your post that I would question.
the EPO is usually for Lender Paid transactions. Sounds like she is doing this borrower paid if the broker is having her do a fee agreement.
True...but we're not using some lenders like UWM right now because their 6-month EPO comes after borrower paid too comp! It's totally obnoxious.
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