First of all, what commission is paid to a mortgage broker?
The current mortgage broker commission structure is made up of an upfront fee, clawback and an ongoing trail commission.
Australian lenders pay a commission to brokers for the introduction of home loans. This means your broker is paid by a lender for helping you find a loan. This is what we call an upfront commission.
Mortgage brokers also receive what is known as a trail commission. This is a deferred payment that the lender pays the broker over the life of the loan. The amount of trail your broker receives is calculated on the balance of your loan. This means that if your broker helps you secure a home loan, the broker will receive the initial upfront commission and then, for every month that you are still in that loan, your broker will also receive a trail commission from the lender.
At Mortgage Choice, our paid the same model means our brokers receive the same rate of commission regardless of which loan or lender you choose. This sets Mortgage Choice brokers apart. It means they only recommend the loan that’s right for you. They have no incentive to recommend a loan or lender because it pays a higher commission.
If you decide that you no longer want to stay with the same home loan, or if you default on your loan payments, you reach a level of arrears, or if you pay the loan off altogether, your broker will no longer receive trail commission.
If you refinance into a new loan with a new lender, your broker will receive a new upfront commission plus an ongoing trail commission from that new lender.
This commission model is structured in such a way as to provide a significant proportion upfront to pay your broker for arranging the loan, while still deferring much of the payment to the broker in the form of trail commission to ensure that your broker provides ongoing service over the long-term.
How much do brokers actually get paid?
On average, a mortgage broker's commission is 0.15% of the loan balance. This equates to approximately $600 a year on a $400,000 loan balance.
Why is trail important?
Trail incentivises your mortgage broker to ensure that you are in a suitable home loan for your needs over the long-term and it means that your broker can continue to provide you with home loan service at no cost to you, throughout the life of your loan.