Is It Typical for Mortgage Broker to Charge Fee on Refinance?

Question

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

Jeff S. · Answer

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.

Doug Smith · Answer

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.

Nate Herndon · Answer

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.

Ronald Rohde · Answer

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?

Bob S. · Answer

Yes of course,

Erik Estrada · Answer

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.

Dallas Sauer · Answer

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.

Dave Skow · Answer

@Kim Hopkins- thanks ...sounds clunky / cumbersome ...most lenders  fo not do this ...consider using another lender

Caroline Gerardo · Answer

In some states such as Arizona its not "enforceable" for a residential loan (commercial is another story).

Doug Smith · Answer

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.

Is It Typical for Mortgage Broker to Charge Fee on Refinance?

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