Mortgage broker commissions, fees and charges. How do mortgage brokers get paid?
Most mortgage brokers receive a commission from the lender. They receive this payment for the business they are bringing to the bank. This means that a home buyer is able to receive free advice, support and guidance, along with a choice from a range of different lenders from a qualified home loan expert.
What commission does a mortgage broker paid?
In Australia, mortgage brokers are paid an upfront commission when your loan settles. The commission is calculated based on the size of your home loan but it also takes into consideration how much you actually draw down and whether you have any funds in your offset account.
A finance broker will also receive a trailing commission. This is a smaller commission paid to your broker each year you keep your loan with the bank. The trailing commission is calculated based on what the loan balance is. Once the loan is paid out, if it goes into arrears or defaults, or is refinanced to another lender, this trailing commission ends.
How much does a mortgage broker get paid?
Commissions can differ from bank to bank, however most of the major banks and bigger lenders now pay all finance brokers the same commission rate.
Since the Royal Commission in 2017 and 2018 a plethora of changes came into place around standard commission rates and the removal of incentives and rewards programs. This makes it fairer for brokers and their clients and helps to remove potential conflict of interests.
Commissions paid to brokers are typically:
- Upfront commission: 0.65%-0.70% +GST
- Trailing commission 0.165%-0.275% +GST
If you refinance or pay out your loan within the first 2-3 years, the mortgage broker will have to pay back part or all of the commissions they were paid.
Will my mortgage broker choose a bank that pays them a higher commission?
No. Since the introduction of Best Interests Duty by ASIC in January 2021, a mortgage broker is not allowed to recommend a product to you that is not in your best interest. That means even though the broker may earn more or less, they have to be able to make a very sound justification as to why they are recommending the product.
What this means is that mortgage brokers are legally obliged to act in your best interests. At times this means a broker won’t receive any income at all and will be working for you pro-bono depending on what is going to be best for your needs.
Won’t my loan be cheaper if I go direct to the bank?
No, in fact you may actually find you pay a higher rate if you go direct to the bank. One of the key things a broker does is negotiate on your behalf and arrange special discounted rates for their clients.
Isn’t it a conflict of interest for the bank to pay the broker?
Not necessarily. A good broker is acting in your best interests and wants you to be with them for a long time. The banks are paying the broker a fee for bringing new clients to them, as the broker is performing the role of an employee in the branch.
A licensed, qualified and professional broker will be making recommendations that suit your needs. No matter which bank they send you to, it must be one who is appropriate for you. Your broker should provide several options to you with their recommendations, can discuss with the broker why they’ve made these recommendations and you have the final say on which lender you choose to proceed with.
Will my mortgage broker rebate their commission to me?
If your mortgage broker charges you an upfront fee, then they may rebate part or all of their commission to you. It’s important to remember running a mortgage broking business is expensive. Throughout the business there are a range of income producing and non-income producing staff, licensing and professional membership fees and whoever they aggregate through (such as Loan Market, AFG or Connective) takes part of their commissions too.
Do Entourage mortgage brokers charge a fee?
No, Entourage do not charge a fee for our mortgage broking and home loan service. We receive commissions from the banks as outlined above.