Lender-Paid Compensation
Lender-Paid Compensation is a fee structure in which the lender covers the mortgage broker's compensation by building it into the loan's interest rate, rather than charging the borrower a separate fee at closing.
Under this model, the borrower does not pay broker compensation out of pocket. Instead, the interest rate is slightly higher to account for the lender's payment to the broker. This approach can reduce upfront closing costs for borrowers who prefer to minimize cash needed at closing.
Lender-paid compensation is not hidden — it is required to be disclosed. It is the opposite of borrower-paid compensation, where the borrower pays the fee directly in exchange for a lower rate.
Why This Matters: Understanding whether your compensation is lender-paid or borrower-paid helps you evaluate your loan's true cost. Ask your loan officer to show you both options so you can choose the structure that fits your financial goals.
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