Are lender payments to my broker ethical?

Lender payments to your broker are legal. Whether they're ethical or not is up for debate.

Typically, what happens when you go through a mortgage broker is that the broker gets a rate quote from a lender, and then marks up the rate. For example, a lender may quote a 7% loan with 2 points, but the broker gives you a quote of 7% with 3 points. That 1-point difference is paid to the broker.

It's become increasingly popular, however, for lenders to offer rebates. In other words, a higher interest rate may include a ? point rebate, meaning you would get that money back. Rather than make you aware of the rebate, however, the broker keeps it. It's legal, but some question whether or not it's ethical.

The best way to prevent this from happening to you is to use an Upfront Mortgage Broker (UMB). Upfront Mortgage Brokers disclose their fees up front and in writing. This means that if there are rebates offered on whatever loan you choose the money will go to you, not your broker.

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