A discount mortgage broker is a mortgage broker who is compensated entirely by the lender rather than by the borrower.  You are paying the broker in the interest rate, which is higher than it would be otherwise. These brokers prefer to charge you this way because they fear you will resist paying out of pocket and will haggle about the amount.

By charging you in the rate, payment is spread out over time in the form of a higher monthly mortgage payment. This will upset you less than a cash payment, especially since you are unlikely even to be aware of how much higher the mortgage payment is. This is really a win-win, since the broker gets their fee and their fee upsets you less.

Example:  A 30-year fixed rate mortgage, the lender quotes a rate of 6% at zero points, 5.75% at 2.5 points, and 6.25% at - 2 points. The lender will pay 2 points for a 6.25% rate, a payment referred to in the trade as (YSP) yield spread premium. If the borrower agrees to the 6.25% rate and the broker receives the rebate as his compensation, the broker typically tells the borrower that they are being paid by the lender. This is true only in the most artificial sense. The lender pays the rebate in order to get the higher interest rate, and the borrower pays the higher rate. The 2 points paid by the lender to the broker is the present value of the higher payments the borrowers will be making in the future.