Wondering how mortgage brokers get paid in Australia?
You’re not the only one.
Understanding the ins and outs of broker fees can make your home loan process clearer.
So, let’s explore how brokers earn their income—and why it matters to you.
Eliminate hours of manual data crunching and focus on building relationships with new clients.
Track My Trail makes it easy for brokers to keep track of lost & gained trail, discover clients who have paid off big chunks of their loans, and identify your most profitable clients.
Get Track My Trail for free today—no credit card required.
How Do Mortgage Brokers Make Money?
Mortgage brokers earn their income by connecting borrowers like you with suitable lenders. Think of them as the bridge between you and the vast array of home loan options out there. But instead of you footing the bill for their service, it’s the lender who pays them a commission when your loan settles. This means you get expert guidance without an added expense from your pocket.
Types of Commission for Mortgage Brokers
When it comes to how brokers get paid, there are two main types of commissions they receive from lenders: upfront commission and trailing commission.
Upfront Commission
Upfront commission is a one-off payment the broker gets once your loan is finalised and settled. It’s calculated as a percentage of the total loan amount. For instance, if you’re approved for a $400,000 mortgage and the lender’s upfront commission rate is 0.65%, your broker would earn $2,600. This payment reflects the work they’ve done to help you secure the loan.
Trailing Commission
Trailing commission, on the other hand, is an ongoing payment the broker receives over the life of your loan. It’s a smaller percentage, usually around 0.15% per annum, based on the remaining loan balance. So, if your outstanding loan amount is $350,000, the broker might receive $525 for that year. This commission keeps your broker invested in providing continued support throughout your loan term.
Why Broker Commissions Exist
Broker commissions exist to compensate brokers for their expertise and the valuable service they provide both you and the lender. By helping you navigate the complex mortgage market and find a loan that fits your needs, brokers save you time and effort. For lenders, brokers introduce qualified borrowers, reducing their marketing costs and administrative workload.
How Much Do Mortgage Brokers Earn Per Loan?
Mortgage broker earnings per loan typically combine upfront and trailing commissions, with average total compensation ranging from $3,000 to $5,000+ over the life of a standard home loan.
Typical Commission Structure
- Upfront Commission
- Average 0.60%-0.70% of loan amount
- Example: $3,000-$3,500 on a $500,000 loan
-
Paid once at settlement
-
Trailing Commission
- Average 0.15%-0.35% p.a. of outstanding balance
- Example: $750-$1,750/year on $500,000
- Paid monthly/quarterly while loan remains active
Factors Influencing Earnings
- Lender agreements: Commission rates vary between institutions
- Clawback periods: Early refinancing can reduce net earnings (see Clawback section)
- Loan type: Investment loans often pay higher commissions than owner-occupied
- Volume bonuses: Brokers moving >$5M/year may earn higher rates
Do Brokers Charge a Fee?
Here’s some good news: in most cases, mortgage brokers in Australia don’t charge you a fee for their services. Since they’re paid by the lender, you benefit from their expertise without any direct cost. This arrangement allows you to tap into their knowledge and network, making the home loan process smoother and more accessible.
Do Mortgage Brokers Earn a Base Salary?
Typically, mortgage brokers don’t have a base salary. They operate on a commission-based model, earning income through the upfront and trailing commissions paid by lenders when they secure loans for clients. This structure incentivises brokers to find loan solutions that are in your best interest and see the process through to completion.
Does Broker Commissions Affect Mortgage Deals?
You might wonder if the way brokers are paid impacts the mortgage deals they offer you. Rest assured, the broker’s commission is a percentage of the loan amount and doesn’t affect the interest rates or fees you pay. Lenders set these rates independently, and brokers aim to find the most suitable options for you from what’s available, not steer you towards loans that pay them more.
When Does a Broker Earn Commission?
A broker earns their upfront commission once your loan settles—that is, when everything is finalised and the funds are released. Trailing commissions start accruing after settlement and continue as long as your loan remains active. If you refinance or pay off your loan early, the trailing commission may reduce or cease, depending on the lender’s policies.
How Do Offset Accounts Affect Broker Commissions?
Offset accounts are a handy feature that can help you reduce the interest you pay on your mortgage. But did you know they can also impact your broker’s trailing commission? If you fully offset your loan—meaning your offset account balance equals your loan balance—the lender might consider the loan effectively paid off. In some cases, this means your broker may not receive any trailing commission during this period. However, this varies between lenders, so it’s something your broker can explain in more detail.
Clawback of Upfront Commissions
Clawback is an important concept to understand in the mortgage industry. If you repay or refinance your loan within a set period (often the first 12 to 24 months), the lender may reclaim some or all of the upfront commission paid to the broker. This is known as clawback. It protects lenders from the costs associated with loans that don’t stay on their books long enough to be profitable.
Why Does Clawback Exist?
Clawback exists to discourage frequent refinancing, known as churning, which can be costly for lenders. By implementing clawback provisions, lenders ensure that brokers are motivated to place clients in loans that suit their long-term needs rather than encouraging short-term switches for additional commissions.
Example
Imagine you take out a home loan through a broker, but decide to refinance with a different lender after just nine months to take advantage of a slightly lower interest rate. The original lender may claw back up to 100% of the upfront commission they paid your broker. This means your broker doesn’t get paid for the work they did to help you secure your initial loan. Some brokers include clauses in their agreements to recover this loss from clients who refinance early, so it’s wise to discuss this with your broker before proceeding.