Are mortgage brokers free in Australia?

It is the question almost everyone asks first, and a fair one: if a broker is helping me, who is paying for it? For most borrowers the reassuring answer is that you pay nothing directly. Here is how that works and the few situations where a fee might apply.

Usually no direct cost to you

In the vast majority of cases, a mortgage broker costs the borrower nothing out of pocket. The broker is paid by the lender once your loan settles, so you receive the advice, the comparison and the paperwork support without writing a cheque. For standard home loans, including most first home buyer loans, this is the norm.

How free actually works

The lender pays the broker a commission from its own margin, the profit built into normal lending. There are two parts: an upfront amount when the loan settles and a smaller ongoing trail while the loan runs. This is simply how the lender chooses to acquire customers, in the same way it pays its own branch staff, so it is not an extra cost bolted onto you.

It does not raise your interest rate

A common worry is that the commission must be coming out of your pocket through a higher rate. It is not. The commission comes from the lender margin, and broker commission rates are broadly similar across lenders, so going through a broker does not increase your interest rate compared with going to that lender directly.

When a broker might charge a fee

A minority of brokers charge a fee in particular situations, typically complex, unusual or very small loans where the lender commission does not cover the work involved. This is the exception rather than the rule, and for ordinary home loans it is uncommon. The key point is that any such fee must be disclosed to you in writing before you proceed.

What you must be told

Brokers are legally required to be transparent about how they are paid. Before you commit, you receive documents, commonly a Credit Guide and a Credit Proposal, that set out the broker remuneration and any fees. You are entitled to ask exactly what the broker will earn on a recommended loan, and a good broker will tell you plainly.

Why a broker can still save you money

Being free to use is one thing; being worth using is another. A broker compares many lenders, can negotiate, and may find a lower rate or fewer fees than you would find alone, which can save far more than the broker costs, which for most people is nothing. The competition a broker creates between lenders works in your favour.

Best Interests Duty protects you

Since 2021, brokers have been bound by a legal Best Interests Duty, which requires them to act in your best interests rather than chase the highest commission. So the fact that the lender pays the broker does not mean the broker is working for the lender, the law requires the recommendation to suit you.

The bottom line

For most borrowers, using a mortgage broker is free, paid by the lender, with any rare fee disclosed in advance. Combined with the Best Interests Duty, that makes a broker a low risk way to get expert help and compare the market, which is a big part of why most Australians now use one.