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How mortgage brokers get paid in Australia: understanding the process

Are you in the market for a new home loan or looking to refinance your current mortgage? Weighing up between using a mortgage broker or going through your bank? You might also be wondering how mortgage brokers get paid, what range of services we provide, and how we seem to do it all for free. In this article, we explain how broker payments work and why brokers are more committed than banks to looking after your best interests.


How do mortgage brokers get paid?

Do mortgage brokers really work for free? At My Finance Agent, most of our loan services are free for borrowers. This doesn't mean we don't get paid—it means we don't get paid by you, the borrower. Instead, we get paid via lender commissions, which are calculated as a small percentage of your loan balance. 

 

There are a few instances where we may charge an upfront fee. But this is only for complex or high-compliance lending scenarios, such as Self-Managed Superannuation Fund loans,  loans involving small loan amounts, and/or short repayment timeframes. In these cases, we would provide you with an upfront quote before proceeding. 


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Our Lending Associate, Gloria Thompson, delivers a settlement to our client, Camille.  


How do lender commissions work? 

In Australia, lender commissions earned by finance brokers typically have two components:   

 

1. Upfront payment 

Upon settlement of your loan, the broker receives a commission from the lender. This commission is calculated as a percentage of the loan balance, minus any balance in offset. The calculation and payment timing vary between lenders, but it usually occurs some days after settlement and is paid the following month.  

 

The upfront component remunerates your broker for their time and expertise in matching your needs with potential lenders, conducting any credit analysis, and preparing your loan application accurately and efficiently. Your broker will also liaise between the lender and your settlement team and coordinate the many other details that go into ensuring that your loan experience is smooth and easy. 

 

2. Trailing commission 

In addition to the upfront payment, brokers may receive a trailing commission. This is an ongoing monthly commission payment based on a percentage of your loan balance, minus any balance in offset. It continues for the duration of the loan. When you discharge or refinance your loan, any trailing commission ends. 


Trailing commission incentivises and rewards your broker for providing continued support and expertise throughout the life of your loan. At My Finance Agent, we go a step beyond this. We provide every client with an Annual Home Loan Health Check, which includes negotiating better rates without refinancing where possible. It is a valuable service that sets us apart from many other brokers. 


All of this information, including how we get paid, is documented in your Game Plan, which you will receive before proceeding with a loan application. 


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If the lender pays the broker, will I get a better deal if I go directly to the bank? 


It may surprise you, but going directly to the bank can actually be more expensive than approaching a mortgage broker. However, using a mortgage broker saves you money because they can access a broader range of mortgage products and negotiate on your behalf. My Finance Agent has access to over 60 lenders and guarantees you the best deal for your circumstances.


While you may think brokers will recommend a loan plan that benefits their commission earnings, since the introduction of the Best Interests Act by ASIC in 2021, it is illegal to do so. Therefore, you can rely on us to find mortgage rates that act in your best interest. Getting you the best interest rate and terms is part of our job.


Sounds simple enough, right? Well, not quite. Sometimes, mortgage brokers have to deal with clawback fees. 

 

What are 'clawback fees?' 


If a home loan is discharged or refinanced within 12 to 24 months of settlement—the exact period differs between lenders—the lender may enact a "clawback fee."


A clawback fee means that the broker must repay some or all of the loan commission. The broker doesn't get to negotiate or plead their case. The lender automatically deducts the previously paid commission, leaving the broker out of pocket. 


Sometimes a borrower's situation can quickly and unexpectedly change, but if for any reason you anticipate your home loan will be repaid or refinanced within two years of settlement, we ask that you inform us in advance.  

  

If the lender pays the broker, who is the broker really working for? 

 

The Australian lending system may be designed around lender-based remuneration but, as your mortgage broker, we work for you. We are governed by the Australian Securities and Investment Commission's rules that specify that mortgage brokers must act in the best interests of consumers. Brokers are required to "determine and assess the best interests of the consumer and present recommendations in line with those interests." The law safeguards borrowers by ensuring that brokers are legally required to put their clients' needs first. 

  

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How do we exercise our best interest duty at My Finance Agent? We take the time to understand your unique financial situation, goals, and needs in detail. From there, we find loan products that best match your circumstances. In short, best interest duty ensures that a broker cannot recommend a product or service they will profit from unless they can demonstrate that it is in the client's best interests. In our case, we also believe that it makes good, ethical business sense! We hope to become your trusted lending expert for life. 

  

You may be interested to learn that, unlike brokers, banks are not bound by best interest duty. Should you go directly to your bank for a loan, they have no obligation to compare competitor alternatives. This leaves you with two choices: accept your bank’s offer or do your own research. Of course, the third option is to let My Finance Agent do the legwork for you! 

 

To read more about best interests duty, click here.   


Your best interests are always our top priority 

If you have any further questions about how mortgage brokers get paid, please don't hesitate to contact us. Transparency is one of our promises and we would be delighted to talk further. We're here to help you navigate the entire lending process with care, confidence, and clarity! 

 

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