So who pays for a mortgage broker? Mortgage brokers in Australia are paid an Upfront commission and a Trail commission from the chosen lender for successfully introducing you to them. Most mortgage brokers rely on this commission for their income and can provide their services to the clients free of charge.
The upfront commission is a one-time payment from the lender made on the settlement of the loan that typically ranges from 0.44% to 1.1% of the home loan amount. The average upfront commission is around 0.715% i.e. on a $500,000 loan; this would equate to an upfront commission of $3575.
Mortgage brokers are also paid a Trail commission from the lender, which is paid for as long as you keep the home loan with the chosen lender. Annual trail commissions range from 0% to 0.3% and depend on the balance of the home loan. The average trail commission is around 0.165%, so on a $500,000 loan, annual trail commission would be $825, which is split up and paid monthly. As the loan amount decreases over time, the monthly trail payment will correspondingly decrease over time. Some lenders do not pay any trail commission in the first 12 months after loan settlement while some lenders offer mortgage brokers increasing trail commissions the longer you keep your home loan with them. For example:
- Year 1 Trail: 0.165%
- Year 2 Trail: 0.165%
- Year 3 Trail: 0.165%
- Year 4 Trail: 0.1925%
- Year 5 Trail: 0.220%
- Year 6+ Trail: 0.220%
However, if you decide to refinance your home loan with another lender within 24 months of settlement, the lender will typically charge the mortgage broker a Clawback fee. If you refinance your home loan to another lender within 12 months of settlement, the lender will on average claim the full 100% of the commission back that they paid the mortgage broker. This then drops to around 50% from 12 to 24 months from settlement and then there are no Clawback fees after 24 months.
Finally, there are some mortgage brokers who do charge a fee for their services, or pass on any clawback fees should you decide to refinance before 24 months has passed. Any fees like this should be made clear within a mortgage broker's credit guide.
I can't speak for other mortgage brokers but in relation to myself:
- I charge no fees.
- I don't charge any Clawback fees.
- When providing you with my loan recommendations, I will always give you a Commission and Remuneration Disclosure report, which features a full commission table. I offer this as I like to be fully transparent about any commissions I may receive and to allay any possible fears that I may be steering you unnecessarily towards a high commission product without informing you.
Here are some of the things I will do for you to earn this commission.
- Learn about you, your requirements and your goals to get a detailed snapshot of what you need from a home loan.
- Compare and contrast hundreds of home loan products and negotiate directly with lenders.
- Find you a great home loan solution with a competitive rate.
- Get you pre-approved for a home loan where eligible.
- Assist you in completing all the paperwork involved.
- Do all the legwork from application through to settlement and keeping you constantly updated along the way.
- Provide advice, guidance and information at every step.
- Post-settlement I'll keep in touch and keep you abreast with market developments while performing regular checks to ensure your home loan remains the best fit for you.
Want to talk more about your home loan options?
If yes, then please get in touch with me today and I'll be happy to help. All my home loan and mortgage services (from the initial meeting, right through to home loan settlement) are completely free to you.