Types of broker commissions
Q2 Loan Servicing allows the FIs to set up commission plans for brokers. This commission can be disbursed in the following ways:
Each type of commission can be a percentage or a flat amount. If it is a percentage, then a Commission On value must be selected to calculate the percentage on. The following Commission On amounts are available for your selection:
Loan Balance
Principal Remaining
Consolidated Balance
The default amount selected is Loan Balance.
When a broker commission is calculated in a loan where there is a deposit transaction involved, then you can select Consolidated Balance to calculate the commission percentage on. For this, for the field Commission On, select the value as Consolidated Balance. Selecting the Consolidated Balance makes sense only when there is a deposit transaction involved. For all other events, Consolidated Balance is the same as Loan Balance.
Upfront commission
Upfront commission is a one-time commission amount paid to the broker when the loan is initially disbursed.
Upfront commission can be a percentage or a flat amount.
The lender can set a variance (positive or a negative value) for each commission-able item at the contract level.
If two or more Commission Items have the same Commission Type and Commission Method, the system only considers the Commission Item with the most recent Start Date.
The formula for calculating an upfront percentage type of broker commission is as follows:
Formula for Upfront Percentage Broker Commission
Broker Commission = (Loan Amount * Total upfront /100)
where Total upfront = Commission Value + Variance
Example
The following table explains how an upfront broker commission is calculated:
| Loan Amount | Commission Type | Commission Method | Commission Value | Variance | Total Upfront | Broker Commission |
|---|---|---|---|---|---|---|
| $10,000 | Upfront | Percentage (0-100) | 0.25% | 0.1% | 0.35% | 10,000 * 0.35/100 = 35 |
| $5,000 | Upfront | Flat Amount | 100 | -20 | 80 | 80 |
Upfront commission is not applicable to Principal Adjustment disbursal.
Trail commission
Trail commission is an ongoing commission paid to the broker over the life of the loan. It is usually calculated as a percentage of the outstanding loan balance and is paid periodically (such as monthly or annually). It can also be a flat amount decided to be paid periodically.
Trail commission is calculated when the BrokerCommissionJob runs in the Start of Day Job Chaining at the billing frequency.
Trail commission can be a percentage or a flat amount.
The lender can set variance (positive and negative value) for each commission-able item at the contract level.
If two or more Commission Items have the same Commission Type and Commission Method, the system only considers the Commission Item with the most recent Start Date.
The formula for calculating a trail percentage type of broker commission is as follows:
Formula for Trail Percentage Broker Commission
Broker Commission = (Loan Balance * Total Trail % * Frequency) / Time Counting Method * 100.
Example 1: Time Counting Method = Months and Days , Billing and IPT frequency = Monthly
The following table explains how a tail broker commission is calculated:
| Loan Balance | Commission Type | Commission Method | Commission Value | Variance | Total trail | Broker Commission |
|---|---|---|---|---|---|---|
| $10,000 | Trail | Percentage (0-100) | 7.55% | -2.15% | 5.4% |
$10,000 * 5.4 * 30/36000 = 45 |
| $5,000 | Trail | Flat Amount | 150 | 10 | 160 | 160 |
Top-up commission
If a lender wants to offer some commission to the broker in case of an additional disbursement such as a Principal Adjustment or a second or a third disbursement, then the lender can offer a top-up type of commission to the broker.
Top-up type of commission is similar to an upfront type of commission.
When a positive principal adjustment is made, a new broker transaction of the type Top-up is created for that principal adjustment.
When a non-first disbursal, such as a second or a third disbursal is made, a new broker transaction of the type Top-up is created for that disbursal transaction.
For detailed examples on how a broker commission is calculated for upfront, trail and top-up, see Calculating the broker commission