How Mortgage Brokers Can Rip You Off

Topics

Key Takeaways

Mortgage brokers usually earn commissions from lenders.
It’s not unusual for some mortgage brokers to charge a fixed rate fee for their services.
Loan officers (i.e. mortgage brokers) should provide the best deal with your best interests in mind and should never force you into any type of mortgage agreement.
Never pay a mortgage broker to submit your mortgage application.
A mortgage broker cannot run any credit checks on borrowers without their permission.

How Mortgage Brokers Are Paid

Mortgage brokers act as an intermediary between borrowers and lenders. They source the best deal available that aligns with borrowers’ budgets and preferences.

They offer unbiased advice, seeking loans from multiple lenders across the UK property market, and are often not tied to single lenders.

Mortgage brokers are typically paid through commissions or a percentage (0.4% – 1%) of the loan amount, either from the lender or the borrower. It’s not unusual for some brokers to charge an hourly rate or fixed fee, which can be anywhere in the range of £300 – £1,000.

It’s best to use a reputable broker (more on this below) and ensure they are vetted by the Financial Conduct Authority (FCA). This ensures they maintain consumer protection, confidentiality, and ethical practices throughout their proceedings.

But how do I know if a mortgage broker is ripping me off?

Let’s take a look at how mortgage brokers can scam you and how to avoid it, next.

7 Ways Mortgage Brokers Can Scam You

1. Running credit checks

It’s unethical to run credit checks on borrowers (or anyone) without that person’s consent. Unauthorised credit checks can negatively impact your credit score.

2. Loan steering

During the mortgage process, a broker may steer you towards mortgage deals that are geared towards a certain mortgage lender. This could occur if they have higher commission structures in place with a specific lender. This is considered unethical in the mortgage industry as they are not acting in the borrower’s best interests.

3. Charging an application fee

One way your mortgage broker can take you for a ride is by charging an application fee to simply submit your mortgage application. This is not necessary but some mortgage brokers can take their chance.

4. Loan flipping

Loan flipping is when mortgage brokers encourage borrowers to refinance multiple times; accruing additional fees each time. When homeowners refinance their mortgage over and over, they are only increasing their mortgage debt. Meanwhile, mortgage brokers will benefit from all the new commissions from their mortgage lenders.

This kind of tactic is by no means beneficial to the borrower.

5. Hidden fees

Mortgage brokers are known to add extra costs to their services, often leaving borrowers with a large bill. These hidden fees are often kept secret at the beginning and only become evident much later on. By this stage, it’s too late to back out of the deal.

Watch out for:

Processing fees
Underwriting fees
Origination fees
Recording fees
Application fees
Add-ons, like life insurance policies

6. Rate dancing

When mortgage brokers won’t disclose interest rates beforehand, it’s a red flag. While it can be tricky to give the exact interest rate, they should be able to give you an estimate before you sign off on any mortgage deal.

‘Rate dancing’ is when mortgage brokers give vague interest rate information. The interest rate will usually only be disclosed at a later stage when it’s often too late to turn back.

7. Rate snipping

Rate snipping is when mortgage brokers offer an unrealistic interest rate, oftentimes much lower than other mortgage lenders. They only do this to entice borrowers. Once they begin with your official credit check and mortgage application, the rate ‘jumps up’ much higher than what was advertised.

Other Scams To Be Wary Of

Some loan officers (i.e. mortgage brokers) can use these sales tactics to rip you off:

Mortgage wire fraud: Some scammers may pose as mortgage lenders or escrow agents, attempting to divert your mortgage payments into a fraudulent bank account. To avoid this, ensure there are no grammatical errors on the invoice, verify the address of the business, and speak to the mortgage company in person before transferring any money.
Fake real estate agents: Some people act as ‘official real estate agents’ and have fake licenses to ‘prove’ it. Always verify your mortgage broker or estate agent with the Department of Real Estate to ensure their credentials are legit.
Non-disclosure of prepayment penalties: Some types of loans (e.g. fixed-rate mortgages) have penalties if borrowers want to make additional payments. Most mortgage brokers will mention this, but there are a few that may “forget”. It is deemed highly unethical to withhold any information from borrowers.
Pushy mortgage brokers: Overly pushy loan officers are another sign of concern. If you find your mortgage broker is fixated on a particular mortgage deal, it’s probably not in your best interest. Getting a mortgage is a big deal and you should never feel pressured. Take your time when deciding which loan option to go for before making your final decision.

How To Avoid Being Ripped Off By Mortgage Brokers

When opting for a particular broker, do your research beforehand. Check the credentials of reputable mortgage brokers and financial advisors on the FCA’s website. Reviewing client testimonials and recommendations is also advised.
Compare mortgage deals from a range of different mortgage brokers.
Get a Good Faith Estimate (GFE) letter.
Ask your mortgage broker a lot of questions. Get them to explain complex loan terms, interest rates, fees, and charges relating to your chosen mortgage deal.
If a deal seems too good to be true, it probably is. Be wary of unrealistic mortgage offers and low interest rates. Use a mortgage calculator for a loan estimate of what you’re eligible for and compare this to what your broker has suggested.
Never sign any documentation until you are 100% sure of what it entails. If you have any doubts or reservations, hire a solicitor to guide you, or opt for a second opinion from a different loan officer.

FAQs

What should I do if I suspect I’m being scammed by my mortgage broker?

Pause the transaction, seek legal advice, and report the fraudulent activity to the relevant authorities.

How can I ensure a mortgage product is best suited to me?

A mortgage loan is a lengthy financial commitment, ranging from 5 to 30 years.

It’s important to have a deep understanding of your financial situation, including your affordability, existing debts, and other financial obligations. A thorough grasp of your mortgage terms, rates and monthly instalments is also key. A trustworthy mortgage broker understands all of this and will provide you with the necessary assistance.

Find a a mortgage brokers in the following cities: