How Do Mortgage Brokers Get Paid?

Below, you’ll find all of the information you need on this to help keep things transparent and allow you to make informed decisions as you head into the exciting chapter of buying a property!

Commissions, Fees and Charges

In Australia, mortgage brokers primarily earn their income through commissions paid by lenders, which are usually categorised into upfront commissions and trailing commissions. Let’s explore these in more detail.

Upfront Commission

Upfront commission typically makes up the majority of a mortgage broker’s income and is a one-time payment made by the lender to the broker once a loan settles. The amount of the upfront commission paid is a percentage of the total loan which can range from 0.3% to 0.7%, but is typically 0.65% of the drawn down loan amount.

If the borrower has funds in offset, the broker is paid on the loan balance ‘net of offset’, meaning any offset funds are taken off the loan amount before commission is paid.

For example, if a mortgage broker helps a borrower secure a $500,000 loan, and the upfront commission rate is 0.65%, the upfront commission payable to the broker would be $3,250. If that same client had $100,000 in offset though, the broker would get paid on $400,000, reducing the upfront commission to $2,600.

Trail Commission

Mortgage brokers receive trail commissions as part of their income, too, and these are ongoing payments made by the lender to the broker for as long as the loan is active. This is usually a smaller percentage of the remaining loan balance- between 0.1% to 0.3%, but typically 0.15% per annum.

So, for instance, on a $500,000 loan with a trailing commission of 0.15%, the broker would earn $750 annually as long as the loan balance remains unchanged. The trail commissions paid to the broker decreases as the loan balance reduces.

Additional Fees and Charges

While most do not charge clients directly, some mortgage brokers charge fees (such as a credit assistance fee or consultation fee), especially for more complex financial services or specialised loan products. Examples of specialised loans may be non-prime lending, applicants with outstanding tax debts or credit defaults/court judgments.

These fees are far less common, but if applicable they will be disclosed upfront by your broker and accepted by you in writing before your home loan application proceeds.

“Soft Dollar” Benefits

Alongside direct monetary commissions, some mortgage brokers may receive “soft dollar” benefits from lenders. These can include non-monetary perks such as training programs, tickets to events, or travel incentives. That being said, many lenders have significantly reduced and even stopped offering these benefits in the wake of the Royal Commission due to the potential for conflicted remuneration.

For this reason, it is essential that your mortgage broker is 100% transparent with you from the start, disclosing how they get paid and including any commission rates, potential fees or other benefits. These will all be disclosed to you in the Finance Proposal we will complete as part of your Home Loan Application Process.

The Role of Lenders in Broker Payments

In most instances, mortgage brokers get paid by lenders rather than borrowers. However, this setup can sometimes lead to concerns about potential conflicts of interest, as some people may believe that brokers are incentivised to recommend loans that offer higher commissions over those that are in the best interests of their clients.

To mitigate these concerns, Australian law requires brokers to adhere to a “best interests duty”, which ensure the needs of the borrower are prioritised over any potential personal gain by choosing a particular lender.

In addition to this, mortgage brokers must hold an Australian Credit Licence or operate as a credit representative under another entity’s licence. This ensure they comply with national consumer protection laws and regulations.

Clawback Fees

Something else you need to be aware of when working with a mortgage broker is clawback fees. Put simply, clawback fees are charges that a lender can impose on a broker if a borrower repays their loan or refinances within a certain period, typically within the first two years.

This fee is meant to recover some of the commission initially paid to the broker. Recent changes in the regulations have prohibited mortgage brokers from passing a clawback fee on to the client.

Why Work with SimpliFi Lending?

When it comes to home loans & the complex mortgage market, working with a reliable and experienced broker is crucial, and SimpliFi Lending stands out as the best choice for several reasons. To start, with years of experience in the mortgage broking industry, we have a deep understanding of the Australian mortgage market and the various loan products available.

We are also legally obliged to act in the best interests of our clients, ensuring that you receive the most suitable home loan options tailored to your needs, and we offer a personalised, one-on-one service, guiding you through every step of the mortgage process while ensuring total transparency.