Most homebuyers are surprised to learn that working with a mortgage broker typically costs them nothing out-of-pocket. So how exactly do mortgage brokers make money if they're not charging you directly? Let's break down the payment structure that keeps brokers helping Australians find the right home loan.
Commission and trail payments
The vast majority of mortgage brokers don't charge borrowers a cent to take out a home loan. Instead, they receive commission payments from the lender you end up signing with. This commission structure comes in two parts:
- Upfront commission: A one-time payment made when your loan settles
- Trail commission: Ongoing payments that continue over the life of your home loan
Upfront Commission
When your mortgage settles, your broker typically receives between 0.46% and 0.65% of the total loan amount from the lender:
- On a $500,000 home loan: $2,300 to $3,250 upfront commission
- On a $1,000,000 home loan: $4,600 to $6,700 upfront commission
This upfront commission is often subject to a clawback provision by lenders if you switch lenders within the first 24 months of your loan - meaning your broker may not earn anything from helping you organise your loan.
Trail Commission
Your broker also receives an ongoing trail commission, typically ranging from 0.165% to 0.275% of the remaining loan amount each year (plus GST). This is paid monthly and translates to:
- On a $500,000 home loan: $500 to $1,750 per year in trail commission
- On a $1,000,000 home loan: $1,000 to $3,500 per year in trail commission
Some lenders structure their trail commission on a sliding scale, increasing the percentage the longer you hold the loan (assuming you continue making repayments).
How is this good for borrowers?
A commission and trail structure creates a win-win-win situation:
- For borrowers: Free access to expertise and a wide range of loan options
- For brokers: Fair compensation for their market knowledge and service
- For lenders: Efficient customer acquisition without maintaining extensive branch networks
The ongoing trail commission also encourages brokers to recommend loans that will truly work for you long-term. If you're unhappy and refinance elsewhere, the broker loses that ongoing income stream.
The Best Interests Duty
Since January 2021, mortgage brokers are legally required to act in your best interests under the "Best Interests Duty" regulations. This means they must prioritise your interests when providing credit assistance, regardless of which lender might pay them more.
This regulatory framework ensures that while brokers are paid by lenders, they must work to find the right solution for your specific circumstances - the perfect alignment of incentives.
The Bottom Line
Understanding how mortgage brokers get paid helps you appreciate the value they provide.
Their commission structure encourages them to find you a suitable, sustainable loan while their legal obligations ensure they put your interests first.
In today's complex mortgage market, having an expert in your corner who can access multiple lenders, negotiate on your behalf, and guide you through the application process - all at no direct cost to you - is an advantage every homebuyer should consider.
