Whether you’re a first home buyer looking for help nailing your application, or a long-time investor hunting for the most competitive deal, you may be considering engaging with a mortgage broker for expert advice and assistance.
But you may be curious as to how mortgage brokers get paid - especially as their services should be free to you. And more importantly, can this affect which home loans your broker recommends?
Let’s explore how mortgage brokers operate and receive commissions, and how this may impact your home loan journey.
What does it cost to visit a mortgage broker?
Typically, it should not cost you anything to work with a mortgage broker. In Australia, many mortgage brokers offer home loan advice and recommendations to borrowers without charging them a cent.
Some brokers may charge fees to cover the expenses involved in processing your mortgage applications, but not for providing their core broking services. It’s usually worth checking upfront whether making an appointment with a mortgage broker will cost you any fees, and what fees would be charged as part of making a mortgage application.
Ideally, if you believe you will be charged unfairly, you should seek the services of another broker instead.
Who pays mortgage brokers?
Most Australian mortgage brokers aren’t paid typical wages or salaries, but are instead paid on a commission basis by the banks and lenders who provide the home loans. When a broker puts a borrower in touch with a bank, and the borrower’s mortgage application is approved, the bank will pay the broker a commission.
For as long as a borrower keeps their mortgage with a bank, the broker that arranged the loan will keep receiving a smaller ongoing commission, known as “trail” commission.
How much are the commissions paid to mortgage brokers?
Mortgage broker commissions are typically based on a percentage of the value of your home loan to your bank. The more money the bank is likely to make through interest and fees on the loan, the more the broker will be paid for organising the mortgage. Some lenders pay a higher percentage of the loan value as broker commissions than others.
Mortgage brokers may be paid by banks, but they work for borrowers. Because of a regulation called Best Interest Duty (BID), it is in a broker’s interest to recommend home loans that suit your finances. Further, if you can’t afford a mortgage and default on your repayments, the broker would lose their trail commission.
A mortgage broker can negotiate with a lender on your behalf, and get you lower interest rates, waived fees or extra bundled services for your mortgage. While discounted home loans make less money for lenders, many banks will still offer brokers the same commissions anyway, as they recognise the value of the broker introducing them to new customers.
Is my broker biased towards loans that pay higher commissions?
Mortgage brokers are obliged to recommend home loans that you can afford, both under Australian law and the codes of practice for the professional organisations that licensed brokers belong to. However, they aren’t always legally obliged to recommend the cheapest possible home loans, or loans that pay less commission.
Don’t be shy about asking your mortgage broker how they’re paid, and what commissions they’ll receive from different lenders for recommending their loans. Find out if there are other options available that could better suit your finances but pay the broker a lower commission. Licensed mortgage brokers are obliged to be upfront with this information.
Are there brokers that don’t work on commission?
Some mortgage brokers aren’t paid commissions and instead charge fees to borrowers for their services. These brokers may be able to recommend lenders that other brokers don’t (e.g. smaller lenders that don’t pay commissions to brokers), and may be able to offer a more personalised level of service.
It’s worth noting that finding a fee-based broker could be difficult, as most of the Australian mortgage broking industry is commission based, making it much more financially challenging for fee-based brokers to operate.
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Alex Ritchie
Personal Finance Editor
Alex Ritchie is a Personal Finance Writer and Editor at RateCity, and has been writing about Australian finance for over six years. Her expertise and passion covers loans, credit, superannuation, and closing the gender pay gap, and she aims to help young Aussies to overcome their financial apathy. Alongside RateCity, Alex has been published in numerous publications, including Australia's Money Magazine, Business Insider, Lifehacker Australia, and in health via NPS MedicineWise.
Alex Ritchie is a Personal Finance Writer and Editor at RateCity, and has been writing about Australian finance for over six years. Her expertise and passion covers loans, credit, superannuation, and closing the gender pay gap, and she aims to help young Aussies to overcome their financial apathy. Alongside RateCity, Alex has been published in numerous publications, including Australia's Money Magazine, Business Insider, Lifehacker Australia, and in health via NPS MedicineWise.
