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How does a mortgage broker get paid?
Mortgage brokers are paid by the lenders on a commission basis for loans they settle. There are two main types of commission a mortgage broker may earn:
Upfront commission
This is what the lender pays the mortgage broker to bring new business to them. It’s typically derived from the existing revenue margin built into the loan. Upfront commissions, plus GST, can range from 0.60% - 0.70% of the loan amount. It’s normally paid a month after a home loan settlement. If the borrower doesn’t remain with the lender for a minimum of 1-2 years, the mortgage broker may have to pay back the upfront commission to the lender under what’s called a clawback provision.
Trail commission
This is regarded as a customer service cost by the lender for retaining the client. A mortgage broker may also get paid an ongoing, ‘trail’ commission as long the borrower remains with the same lender. Trail commissions can range from 0.10% - 0.20% of the loan balance each year. If the borrower refinances to another lender or broker, the trail commission will no longer be paid.
Brokers employed as part of a brokerage firm also generally earn a base salary in addition to commissions.
Is your broker biased towards loans that pay higher commissions?
Mortgage brokers generally get paid a standard commission regardless of what loan they recommend, although they may earn a higher commission on certain loans.
However, under ASIC’s Best Interests Duty provision, mortgage brokers cannot recommend home loan products that are not in the best interest of their clients.
This means brokers must prioritise their clients’ needs and financial situation when making recommendations, not the loan product with the highest commission.
Brokers are also required to disclose their commission rates and any potential conflicts of interest, ensuring transparency in their recommendations.
When in doubt, you can ask your mortgage broker how their commissions are structured and if they receive any bonus incentives for signing you up with a particular lender or loan product.
Do mortgage brokers charge a fee?
While most mortgage brokers typically don't charge borrowers a fee for their services, there may be instances where they do. These situations could include:
- Complex borrower scenarios, like if you’re applying for a home loan as a self-employed individual or if you’re applying for a bad credit home loan
- Small home loans under $450,000 — brokers may charge the difference between what a lender would pay them for their business' minimum loan size
- If you want to refinance or repay the loan within 1-2 years
- Commercial or business loans
How much does it cost to use a mortgage broker?
In most cases, using a mortgage broker won’t cost you anything. According to ASIC’s review of mortgage broker remuneration, 85% of brokerage firms told ASIC they do not give brokers the option of charging upfront fees to customers.
In cases where broker businesses were permitted to charge a fee, most businesses reported that the broker was responsible for determining the fee amount and received the entire fee.
Brokers must supply a Credit Quote that outlines all their fees and charges before working with any client. You may be required to sign that document to confirm all costs have been explained to you.
Can you negotiate a broker’s fees or commission?
Commission rates set by the lenders are generally not negotiable. However, you can negotiate any fees the broker charges you directly. Alternatively, you can ask that all fees be paid after the loan is arranged.