Compensation Explained!
Finder's Fees
Finder's Fees are the direct compensation (commission) amounts paid out by the lender. Finders fees are calculated using 'Basis Points' or 'BPS' and the amount of the mortgage is calculated by the BPS and the result is the commission amount.
Example - $500,000 mortgage @ 80bps = $4,000 Finder's Fee (500,000 x .8%)
Broker's Fees
Broker's Fees are charged directly by the broker to the client and are collected by the clients lawyer at closing and directed to the national network by the lawyer. Broker's fees can be charged on a percentage basis like Finder's Fees, or a specific dollar amount can be charged (Flat Fee). Broker's fees are commonly charged on private mortgages and some alternative mortgages depending on lender compensation and the amount of work performed on the file. A Broker's Fee should not be charged on a 'Prime' (A) file as they are not allowed!
Example - $500,000 mortgage @ 1% = $5,000 Broker's Fee (500,000 x 1%)
Volume Bonus (VB) and Efficiency Bonus
Volume and Efficiency Bonuses are an additional amount paid by the lender on top of the Finder's Fee and with some lenders a certain amount of volume needs to be hit with that lender before these bonuses are paid out. Some lenders will pay Volume and Efficiency Bonuses based on 'Corporate' or the national networks volume; therefore, being part of the network assists in the threshold being hit and Volume and Efficiency Bonuses being applicable.
Pssst - Not all brokerages pay out Volume and Efficiency Bonuses; Mortgage Foundations does!!!
Example - $500,000 mortgage @ 25bps VB = $1,250 Volume Bonus (500,000 x .25%)
Lender Promotions
From time to time, lenders may offer extra promotions in the form of extra BPS on a deal. These promotions will normally be for a certain amount of time and may only be applicable on certain deals, such as 'Insured Only' or 'Fixed Only' or 'Quick Close' files. These promotions may be paid out along with the Finder's Fee, or may be paid out separately and may or may not form part of the agent's compensation split (Mortgage Foundations includes it)!
Example - $500,000 mortgage with a 20bps promotion = $1,000 Promotion Commission (500,000 x .2%)
Trailer Fees
Trailer fees are a type of recurring commission that is paid by a lender, usually annually or upon renewal of the mortgage. Not all lenders offer a trailer fee compensation model. A trailer fee compensation model will usually provide a smaller upfront commission when compared to a regular Finder's Fee model; however, over time they can present the opportunity for a higher commission total.
Example - A lender that pays 110bps on a normal file, may pay 87bps upfront on a trailer fee file, with 5bps paid annually and then 20bps upon renewal
Mortgage Protection Plan (MPP) Commission
Mortgage Protection Plan is an optional product that can be offered to clients in order to protect their mortgage and help ensure that their loved ones are not put in a tough financial position regarding their mortgage in the event of disability or death. When MPP is accepted by a client, a commission is earned based on the clients premium and is paid out as long as the client keep the coverage in place for a certain amount of time. Each brokerage will have a different compensation model which may feature a certian percentage or a multiple of the premium itself
Royalties
A royalty is a part of the compensation that is usually recovered off the top of the commission after it has been paid out by the lender. This results in a smaller commission figure prior to the brokerage split being applied and the agent or broker receiving their portion of the commission. It is important to consider if your future commission will be subject to a royalty, how much the royalty is and at what point it is recovered by the entity that is taking it.
Example - A lender pays 105bps on a $700,000 mortgage brokered by an agent or broker on a 70/30 split.
Gross commission paid by the lender would be $7,350.00
If a 5% royalty were recovered from this commission it would result in a net commission to the agent or broker of $4,887.75 (66.5%)
***The royalty model results in a lower effective split received by the agent or broker***
If there was no royalty recovered from the commission it would result in a net commission to the agent or broker of $5,145.00 (70%)
The Centum network, nor Mortgage Foundations recovers a royalty off the top of your commission; this ensures that your commission split is based off the full commission received!
