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Etiquette around loan refinance - decision is going to cost first broker a lot of commission

Refinancing immediately after closing on a house purchaseWhat is the best way to get a “rough” home appraisal prior to starting the refinance process?Stop paying your mortgage to lower your interest rate?Losing equity on a house, any feasible options?want to refinance FHA loan, may move out unexpectedly and would like to keep as investment property, what are my options?Is it beneficial for me to refinance my house at a lower rate?Interest rates dropped significant immediately after purchasing a homeIs “odd days interest” really a thing in a mortgage refinance?Refinancing immediately after closing on a house purchaseMortgage principal reductionHow much variation between lenders is there in the cost of financing a home mortgage loan (in the United States)?

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13

We are in the process of doing a refinance. However, we just took out the original mortgage loan recently. The new loan is 3/8 of a point better than the original loan and we are going to save a lot of money in interest payments.

I learned recently that this is going to cost the originator of the first loan quite a bit of money. I feel bad about it, but also, I didn't know at the time I started the refinance that there was a penalty for the originator if I pay off the balance of the first mortgage loan early; no one mentioned this during the process.

Is there etiquette around how I should handle this? Can anyone with knowledge of the loan origination industry explain how much money there is to be gained or lost in an early refinance? The first originator described the loss as "huge" but I don't know if they are exaggerating or what that would entail.

edit according to this answer the penalty may be between 1-3% of the loan value. Does that sound right? https://money.stackexchange.com/a/101707/84070

mortgage refinance application-process

share|improve this question

edited 1 hour ago

smci

1667

asked 12 hours ago

Esta CloseEsta Close

664

New contributor

Esta Close is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

• 
  
  
  

  
  9
  

  
  
  
  
  
  

  
  
  I always speak first to the current lender to see if they will match rate and do a no-cost refi or streamlined refi or whatever they want to call it. If not, then move on, why feel sorry for someone that is charging you more than the market dictates they should?
  
  – Hart CO
  12 hours ago
  

  
  
  
  


• 
  
  
  

  
  9
  

  
  
  
  
  
  

  
  
  Is it going to cost the loan originator in that they won't be making future profit off you, or is it going to cost you a penalty to get out of the original loan? The first sounds likely, but that's not your problem, the second also sounds likely and is your problem.
  
  – AndyT
  12 hours ago
  

  
  
  
  


• 
  
  
  

  
  2
  

  
  
  
  
  
  

  
  
  Apparently the commission for loan origination depends on how long the person holds the loan for. If the borrower pays back the loan early (as I am doing to refinance) they lose the commission. I'm trying to figure out what the exact details are as I'm not a loan originator.
  
  – Esta Close
  12 hours ago
  

  
  
  
  


• 
  
  
  

  
  4
  

  
  
  
  
  
  

  
  
  Welcome new user. I was just wondering, are you a personal friend of the loan originator person?? Or is it just "someone at the bank" ??
  
  – Fattie
  10 hours ago
  

  
  
  
  


• 
  
  
  

  
  4
  

  
  
  
  
  
  

  
  
  So they're losing the commission on this deal, because the loan didn't last long. But if rates have recently dropped, then presumably people will be clamoring to refi, so new business (and new commissions) should be easily had in this market. I really wouldn't worry about them.
  
  – CactusCake
  10 hours ago
  

  
  
  
  

 | 
show 7 more comments

13

We are in the process of doing a refinance. However, we just took out the original mortgage loan recently. The new loan is 3/8 of a point better than the original loan and we are going to save a lot of money in interest payments.

I learned recently that this is going to cost the originator of the first loan quite a bit of money. I feel bad about it, but also, I didn't know at the time I started the refinance that there was a penalty for the originator if I pay off the balance of the first mortgage loan early; no one mentioned this during the process.

Is there etiquette around how I should handle this? Can anyone with knowledge of the loan origination industry explain how much money there is to be gained or lost in an early refinance? The first originator described the loss as "huge" but I don't know if they are exaggerating or what that would entail.

edit according to this answer the penalty may be between 1-3% of the loan value. Does that sound right? https://money.stackexchange.com/a/101707/84070

mortgage refinance application-process

share|improve this question

edited 1 hour ago

smci

1667

asked 12 hours ago

Esta CloseEsta Close

664

New contributor

Esta Close is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

• 
  
  
  

  
  9
  

  
  
  
  
  
  

  
  
  I always speak first to the current lender to see if they will match rate and do a no-cost refi or streamlined refi or whatever they want to call it. If not, then move on, why feel sorry for someone that is charging you more than the market dictates they should?
  
  – Hart CO
  12 hours ago
  

  
  
  
  


• 
  
  
  

  
  9
  

  
  
  
  
  
  

  
  
  Is it going to cost the loan originator in that they won't be making future profit off you, or is it going to cost you a penalty to get out of the original loan? The first sounds likely, but that's not your problem, the second also sounds likely and is your problem.
  
  – AndyT
  12 hours ago
  

  
  
  
  


• 
  
  
  

  
  2
  

  
  
  
  
  
  

  
  
  Apparently the commission for loan origination depends on how long the person holds the loan for. If the borrower pays back the loan early (as I am doing to refinance) they lose the commission. I'm trying to figure out what the exact details are as I'm not a loan originator.
  
  – Esta Close
  12 hours ago
  

  
  
  
  


• 
  
  
  

  
  4
  

  
  
  
  
  
  

  
  
  Welcome new user. I was just wondering, are you a personal friend of the loan originator person?? Or is it just "someone at the bank" ??
  
  – Fattie
  10 hours ago
  

  
  
  
  


• 
  
  
  

  
  4
  

  
  
  
  
  
  

  
  
  So they're losing the commission on this deal, because the loan didn't last long. But if rates have recently dropped, then presumably people will be clamoring to refi, so new business (and new commissions) should be easily had in this market. I really wouldn't worry about them.
  
  – CactusCake
  10 hours ago
  

  
  
  
  

 | 
show 7 more comments

We are in the process of doing a refinance. However, we just took out the original mortgage loan recently. The new loan is 3/8 of a point better than the original loan and we are going to save a lot of money in interest payments.

I learned recently that this is going to cost the originator of the first loan quite a bit of money. I feel bad about it, but also, I didn't know at the time I started the refinance that there was a penalty for the originator if I pay off the balance of the first mortgage loan early; no one mentioned this during the process.

Is there etiquette around how I should handle this? Can anyone with knowledge of the loan origination industry explain how much money there is to be gained or lost in an early refinance? The first originator described the loss as "huge" but I don't know if they are exaggerating or what that would entail.

edit according to this answer the penalty may be between 1-3% of the loan value. Does that sound right? https://money.stackexchange.com/a/101707/84070

mortgage refinance application-process

share|improve this question

edited 1 hour ago

smci

1667

asked 12 hours ago

Esta CloseEsta Close

664

New contributor

Esta Close is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

share|improve this question

edited 1 hour ago

smci

1667

asked 12 hours ago

Esta CloseEsta Close

664

New contributor

Esta Close is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

share|improve this question

edited 1 hour ago

smci

1667

asked 12 hours ago

Esta CloseEsta Close

664

New contributor

Esta Close is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

edited 1 hour ago

smci

1667

edited 1 hour ago

smci

1667

asked 12 hours ago

Esta CloseEsta Close

664

New contributor

Esta Close is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

asked 12 hours ago

Esta CloseEsta Close

664

2 Answers
2

active

oldest

votes

22

I have a friend who is a mortgage broker. At the company he works for, if one of his loans is paid off within 6 months of origination, he loses his commission. It's only happened to him a few times in 9 years, and he had to repay the commission on those loans in the form of future paycheck reductions. In his case 2 large loans happened in the same month after rates dropped significantly and he didn't get paid for 60 days. So it definitely can hurt the loan officer that sold you the loan.

I suspect they know this is coming though, as rates have dropped significantly this year.

I would contact your broker, explain the situation and see if they can refi for you. They may have contracts with their banks that don't allow them to, and if they can't then ask your broker what the cutoff date is and if it isn't too far into the future, consider waiting. If you don't want to wait that long, I think you should do what's best for you, but it may be nice to at least let your broker know so they can plan for it accordingly. Of course, you aren't under any obligation to notify them if you aren't comfortable doing so.

Update: regarding your last question, the broker getting a 1-2% commission is certainly plausible (though 3% seems a little high in the current market). You can figure on a 4% loan, in the first 6 months the bank makes just under 2% in interest. It's believable that a bank might be willing to pay the first 6 months of interest to a broker as a finders fee, but only if the loan lasts 6 months.

share|improve this answer

edited 10 hours ago

answered 11 hours ago

TTTTTT

29.9k45997

• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  Thanks! I reached out and explained what is going on, and we're chatting about it. 6 months is probably too long for us to wait.
  
  – Esta Close
  11 hours ago
  
  
  

  
  
  
  


• 
  
  
  

  
  4
  

  
  
  
  
  
  

  
  
  @EstaClose - That's great. I think you've nailed the best possible etiquette by talking to the broker.
  
  – TTT
  11 hours ago
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  While I guess it's good if you can with little cost to yourself support someone who'd otherwise potentially go without pay for months, I could also make the argument that you're propping up abhorrent business practices. Maybe more people need to pay off their loans early so brokers will learn not to get themselves into such terrible contracts.
  
  – curiousdannii
  3 hours ago
  

  
  
  
  

add a comment | 

5

The first lender simply gets all their money back when you refinance - where is the "huge loss" in that? Then, they can lend that money to someone else, benefiting from closing costs once again.

So don't feel bad but pay close attention to all the associated costs and penalties, and weigh that against the savings in interest.

share|improve this answer

answered 12 hours ago

void_ptrvoid_ptr

1,21049

• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  Nothing, it's entirely on the backend. Still if someone is going to be out 10X so I can save X, and I'd previously had a good relationship with that person, it seems less than ideal. I'm trying to figure out what the multiplier is.
  
  – Esta Close
  11 hours ago
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  Regarding your first sentence, it's not the bank that takes the loss, it's the sales person losing their commission.
  
  – TTT
  11 hours ago
  

  
  
  
  


• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  @JMac Would you accept a discount at a restaurant if you knew that the waiter would be docked 10X that much in their pay, through no fault of their own?
  
  – Barmar
  9 hours ago
  

  
  
  
  


• 
  
  
  

  
  6
  

  
  
  
  
  
  

  
  
  @Barmar It's not really like that IMO. They are offered commissions based on the contract lasting for a certain amount of time. If they are getting the bonus and spending it before the contract reaches that time, it's kinda on them. Losing a commission that you haven't satisfied the conditions on isn't the same as being docked pay really.
  
  – JMac
  9 hours ago
  

  
  
  
  


• 
  
  
  

  
  4
  

  
  
  
  
  
  

  
  
  @JPhi1618 If your entire livelihood rests on commissions that can be legally taken away within 6 months due to customer decisions, then it's time to look for a new job, not try to convince your customers to take a worse deal. I have my doubts that they operate solely on commission; but if they do, even bringing up this issue to clients seems like bad business practice. The issue is that, if the money can still be taken away regardless your own actions, it's not safe to consider it money that you've "made". OP taking a worse deal because of someone else's lack of financial plans isn't fair.
  
  – JMac
  8 hours ago
  

  
  
  
  

 | 
show 9 more comments

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22

I have a friend who is a mortgage broker. At the company he works for, if one of his loans is paid off within 6 months of origination, he loses his commission. It's only happened to him a few times in 9 years, and he had to repay the commission on those loans in the form of future paycheck reductions. In his case 2 large loans happened in the same month after rates dropped significantly and he didn't get paid for 60 days. So it definitely can hurt the loan officer that sold you the loan.

I suspect they know this is coming though, as rates have dropped significantly this year.

I would contact your broker, explain the situation and see if they can refi for you. They may have contracts with their banks that don't allow them to, and if they can't then ask your broker what the cutoff date is and if it isn't too far into the future, consider waiting. If you don't want to wait that long, I think you should do what's best for you, but it may be nice to at least let your broker know so they can plan for it accordingly. Of course, you aren't under any obligation to notify them if you aren't comfortable doing so.

Update: regarding your last question, the broker getting a 1-2% commission is certainly plausible (though 3% seems a little high in the current market). You can figure on a 4% loan, in the first 6 months the bank makes just under 2% in interest. It's believable that a bank might be willing to pay the first 6 months of interest to a broker as a finders fee, but only if the loan lasts 6 months.

share|improve this answer

edited 10 hours ago

answered 11 hours ago

TTTTTT

29.9k45997

• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  Thanks! I reached out and explained what is going on, and we're chatting about it. 6 months is probably too long for us to wait.
  
  – Esta Close
  11 hours ago
  
  
  

  
  
  
  


• 
  
  
  

  
  4
  

  
  
  
  
  
  

  
  
  @EstaClose - That's great. I think you've nailed the best possible etiquette by talking to the broker.
  
  – TTT
  11 hours ago
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  While I guess it's good if you can with little cost to yourself support someone who'd otherwise potentially go without pay for months, I could also make the argument that you're propping up abhorrent business practices. Maybe more people need to pay off their loans early so brokers will learn not to get themselves into such terrible contracts.
  
  – curiousdannii
  3 hours ago
  

  
  
  
  

add a comment | 

22

I have a friend who is a mortgage broker. At the company he works for, if one of his loans is paid off within 6 months of origination, he loses his commission. It's only happened to him a few times in 9 years, and he had to repay the commission on those loans in the form of future paycheck reductions. In his case 2 large loans happened in the same month after rates dropped significantly and he didn't get paid for 60 days. So it definitely can hurt the loan officer that sold you the loan.

I suspect they know this is coming though, as rates have dropped significantly this year.

I would contact your broker, explain the situation and see if they can refi for you. They may have contracts with their banks that don't allow them to, and if they can't then ask your broker what the cutoff date is and if it isn't too far into the future, consider waiting. If you don't want to wait that long, I think you should do what's best for you, but it may be nice to at least let your broker know so they can plan for it accordingly. Of course, you aren't under any obligation to notify them if you aren't comfortable doing so.

Update: regarding your last question, the broker getting a 1-2% commission is certainly plausible (though 3% seems a little high in the current market). You can figure on a 4% loan, in the first 6 months the bank makes just under 2% in interest. It's believable that a bank might be willing to pay the first 6 months of interest to a broker as a finders fee, but only if the loan lasts 6 months.

share|improve this answer

edited 10 hours ago

answered 11 hours ago

TTTTTT

29.9k45997

• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  Thanks! I reached out and explained what is going on, and we're chatting about it. 6 months is probably too long for us to wait.
  
  – Esta Close
  11 hours ago
  
  
  

  
  
  
  


• 
  
  
  

  
  4
  

  
  
  
  
  
  

  
  
  @EstaClose - That's great. I think you've nailed the best possible etiquette by talking to the broker.
  
  – TTT
  11 hours ago
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  While I guess it's good if you can with little cost to yourself support someone who'd otherwise potentially go without pay for months, I could also make the argument that you're propping up abhorrent business practices. Maybe more people need to pay off their loans early so brokers will learn not to get themselves into such terrible contracts.
  
  – curiousdannii
  3 hours ago
  

  
  
  
  

add a comment | 

I have a friend who is a mortgage broker. At the company he works for, if one of his loans is paid off within 6 months of origination, he loses his commission. It's only happened to him a few times in 9 years, and he had to repay the commission on those loans in the form of future paycheck reductions. In his case 2 large loans happened in the same month after rates dropped significantly and he didn't get paid for 60 days. So it definitely can hurt the loan officer that sold you the loan.

I suspect they know this is coming though, as rates have dropped significantly this year.

I would contact your broker, explain the situation and see if they can refi for you. They may have contracts with their banks that don't allow them to, and if they can't then ask your broker what the cutoff date is and if it isn't too far into the future, consider waiting. If you don't want to wait that long, I think you should do what's best for you, but it may be nice to at least let your broker know so they can plan for it accordingly. Of course, you aren't under any obligation to notify them if you aren't comfortable doing so.

Update: regarding your last question, the broker getting a 1-2% commission is certainly plausible (though 3% seems a little high in the current market). You can figure on a 4% loan, in the first 6 months the bank makes just under 2% in interest. It's believable that a bank might be willing to pay the first 6 months of interest to a broker as a finders fee, but only if the loan lasts 6 months.

share|improve this answer

edited 10 hours ago

answered 11 hours ago

TTTTTT

29.9k45997

share|improve this answer

edited 10 hours ago

answered 11 hours ago

TTTTTT

29.9k45997

answered 11 hours ago

TTTTTT

29.9k45997

answered 11 hours ago

TTTTTT

29.9k45997

5

The first lender simply gets all their money back when you refinance - where is the "huge loss" in that? Then, they can lend that money to someone else, benefiting from closing costs once again.

So don't feel bad but pay close attention to all the associated costs and penalties, and weigh that against the savings in interest.

share|improve this answer

answered 12 hours ago

void_ptrvoid_ptr

1,21049

• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  Nothing, it's entirely on the backend. Still if someone is going to be out 10X so I can save X, and I'd previously had a good relationship with that person, it seems less than ideal. I'm trying to figure out what the multiplier is.
  
  – Esta Close
  11 hours ago
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  Regarding your first sentence, it's not the bank that takes the loss, it's the sales person losing their commission.
  
  – TTT
  11 hours ago
  

  
  
  
  


• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  @JMac Would you accept a discount at a restaurant if you knew that the waiter would be docked 10X that much in their pay, through no fault of their own?
  
  – Barmar
  9 hours ago
  

  
  
  
  


• 
  
  
  

  
  6
  

  
  
  
  
  
  

  
  
  @Barmar It's not really like that IMO. They are offered commissions based on the contract lasting for a certain amount of time. If they are getting the bonus and spending it before the contract reaches that time, it's kinda on them. Losing a commission that you haven't satisfied the conditions on isn't the same as being docked pay really.
  
  – JMac
  9 hours ago
  

  
  
  
  


• 
  
  
  

  
  4
  

  
  
  
  
  
  

  
  
  @JPhi1618 If your entire livelihood rests on commissions that can be legally taken away within 6 months due to customer decisions, then it's time to look for a new job, not try to convince your customers to take a worse deal. I have my doubts that they operate solely on commission; but if they do, even bringing up this issue to clients seems like bad business practice. The issue is that, if the money can still be taken away regardless your own actions, it's not safe to consider it money that you've "made". OP taking a worse deal because of someone else's lack of financial plans isn't fair.
  
  – JMac
  8 hours ago
  

  
  
  
  

 | 
show 9 more comments

5

The first lender simply gets all their money back when you refinance - where is the "huge loss" in that? Then, they can lend that money to someone else, benefiting from closing costs once again.

So don't feel bad but pay close attention to all the associated costs and penalties, and weigh that against the savings in interest.

share|improve this answer

answered 12 hours ago

void_ptrvoid_ptr

1,21049

• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  Nothing, it's entirely on the backend. Still if someone is going to be out 10X so I can save X, and I'd previously had a good relationship with that person, it seems less than ideal. I'm trying to figure out what the multiplier is.
  
  – Esta Close
  11 hours ago
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  Regarding your first sentence, it's not the bank that takes the loss, it's the sales person losing their commission.
  
  – TTT
  11 hours ago
  

  
  
  
  


• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  @JMac Would you accept a discount at a restaurant if you knew that the waiter would be docked 10X that much in their pay, through no fault of their own?
  
  – Barmar
  9 hours ago
  

  
  
  
  


• 
  
  
  

  
  6
  

  
  
  
  
  
  

  
  
  @Barmar It's not really like that IMO. They are offered commissions based on the contract lasting for a certain amount of time. If they are getting the bonus and spending it before the contract reaches that time, it's kinda on them. Losing a commission that you haven't satisfied the conditions on isn't the same as being docked pay really.
  
  – JMac
  9 hours ago
  

  
  
  
  


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  @JPhi1618 If your entire livelihood rests on commissions that can be legally taken away within 6 months due to customer decisions, then it's time to look for a new job, not try to convince your customers to take a worse deal. I have my doubts that they operate solely on commission; but if they do, even bringing up this issue to clients seems like bad business practice. The issue is that, if the money can still be taken away regardless your own actions, it's not safe to consider it money that you've "made". OP taking a worse deal because of someone else's lack of financial plans isn't fair.
  
  – JMac
  8 hours ago
  

  
  
  
  

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The first lender simply gets all their money back when you refinance - where is the "huge loss" in that? Then, they can lend that money to someone else, benefiting from closing costs once again.

So don't feel bad but pay close attention to all the associated costs and penalties, and weigh that against the savings in interest.

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answered 12 hours ago

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1,21049

share|improve this answer

answered 12 hours ago

void_ptrvoid_ptr

1,21049

answered 12 hours ago

void_ptrvoid_ptr

1,21049

answered 12 hours ago

void_ptrvoid_ptr

1,21049