How do mortgage brokers get paid in Australia?

Knowing how a broker actually earns their living takes the mystery, and the suspicion, out of using one. The structure is simpler than people expect, it is regulated, and it is built to align the broker with looking after you. Here is exactly how it works.

The lender pays, not you

The fundamental point is that the lender pays the broker, not the borrower. For standard home loans you generally pay nothing directly to the broker. The lender treats the commission as a cost of acquiring your business, much like the cost of running its own branches.

Upfront commission

When your loan settles, the lender pays the broker an upfront commission. Across the market this is commonly in the order of 0.55 to 0.70 per cent of the loan amount, and it is often calculated on the amount actually drawn, excluding any offset balance. It is a one off payment at settlement.

Trail commission

On top of the upfront, the lender pays an ongoing trail commission for as long as the loan stays in place, commonly around 0.15 per cent a year of the outstanding balance, paid monthly. Because it is based on the balance, it declines as you pay the loan down. Trail is designed to reward the broker for looking after you over the life of the loan, not just at settlement.

It comes from the lender margin

Both commissions come out of the lender margin, the profit built into normal lending, not from an extra charge to you. Importantly, broker commission rates are broadly similar across lenders, which removes the incentive to steer you toward a higher paying lender at the expense of your outcome.

Commission is fairly standardised

Because the commission a broker can earn does not vary much from one lender to the next, the choice of lender is driven by what suits you, not by what pays the broker most. This standardisation is one of the practical safeguards against bias in the system.

Clawback

There is a feature called clawback. If a loan is repaid or refinanced within a short period after settlement, often within the first year, the lender takes back some or all of the upfront commission from the broker. This aligns the broker with arranging loans that last. Even so, the Best Interests Duty requires a broker to recommend refinancing if it genuinely suits you, even where that triggers a clawback against them.

Disclosure is mandatory

Brokers must disclose how they are paid. Before you proceed you receive documents, commonly a Credit Guide and a Credit Proposal, setting out the remuneration. You can ask for the exact figure on any recommended loan, and a transparent broker will give it to you without hesitation.

Why the structure works for you

Taken together, trail commission and clawback give a broker a financial reason to put you in a loan that suits you and to keep looking after you afterward, rather than chasing a quick settlement. Combined with the Best Interests Duty, the remuneration model is designed to keep the broker on your side.