Mortgage Broker Commission Uncovered
Most mortgage brokers in Australia provide advice and services to their customers free of charge, this is because they are paid mortgage broker commission by the lenders when they get a loan settled for a customer. Mortgage broker commission is paid in two ways by the bank or finance lender for each loan that goes through, these are called upfront commission and trail commission.
The first payment a broker receives is an upfront commission, paid when the loan settles. The upfront commission is a percentage of the total loan amount and it varies from lender to lender. Most lenders pay between 0.55% and 0.8% of the total loan amount for upfront mortgage broker commission. This means on a $600,000 loan, if a lender pays 0.55%, the mortgage broker will receive $3300 and if a lender pays 0.8%, the broker will receive $4800. If the loan is closed within one year of settlement because it is either paid out or refinanced with another loan, the mortgage broker will be required to repay this upfront commission.
The second payment a mortgage broker receives for every loan is called trail commission. This is calculated on a yearly basis by the lenders as long as the loan exists. Trail mortgage broker commission is usually between 0.1% and 0.25% per year on the loan balance, depending on the lender. This means on a loan with a balance of $450,000, if a lender pays 0.1%, the mortgage broker will receive trail commission of approximately $450 for the year. If a lender pays 0.25%, the broker will receive approximately $1125 for the year. As you pay off your loan, the trail commission to the mortgage broker will be reduced and once the loan is closed or paid out, the trail commission will cease.
Making sure you get unbiased advice
Because of the large variances shown in the mortgage broker commission figures above, it is imperative to ensure your mortgage broker gives you unbiased advice. They should recommend the loans that are best for you, not the loans they will make the most income on. Ask your broker to give you as many options as possible from multiple lenders for your loan choice. If your broker doesn’t give you a wide selection of options, ask why and request they provide you with more information from a larger variety of lenders . Your broker should also be happy to disclose what commissions they receive from those specific lenders.
If your mortgage broker only gives you one choice of lender, it is possible they are doing this to make the most income from your loan instead of getting you the best deal. A good mortgage broker will give you many options, they will disclose all commissions and they will give you solid reasons for referring one particular loan over another. Most brokers want to get you the best deal on your loan so they can retain your business for future lending and have you as a customer for life. You just need to make sure this is the case with your broker so don’t hesitate to ask for more information.
Choosing a Mortgage Broker
- Ask your friends or family if they can recommend someone. If you don’t have any recommendations, research local brokers online and see what other people are saying about them.
- Check to make sure the Broker is registered with the Australian Securities Investments Commission ASIC and also see if they are a member of a mortgage association like Mortgage Finance Association of Australia MFAA or Finance Brokers Association of Australia FBAA.
- Find out how many lenders your broker is accredited with. The more lenders, the more choice you will have. A number of lenders have started acting as brokers which means they only offer one lenders products – their own!
- Make sure your broker discloses all commission and payments from the lender. If they want to charge you a fee, (it’s rare but it does happen) find out what additional service they are providing that requires additional payment.
- Your broker should have professional indemnity insurance.
- If at any stage of the process you feel uncomfortable with the broker or their recommendations or you are not getting a good level of service and communication, don’t hesitate to get a second opinion. Give another mortgage broker a call, let them know what has been recommended to you and see if they can offer you anything better, it never hurts to shop around.