How Does a Mortgage Broker Get Paid?
When you’re looking to secure a home loan, a mortgage broker can be an invaluable partner, helping you navigate the complexities of lenders, interest rates, and loan products. But how do mortgage brokers get paid, and what sets their services apart from going directly to a bank?
In this article, we’ll explain how mortgage brokers earn their income, highlight the ongoing services they provide, and discuss their legal obligation to act in your best interests—something banks are not required to do.
How Mortgage Brokers Earn Income
Mortgage brokers are paid by lenders, not borrowers, which means their services are typically free for you as the client. Their income comes from two main sources: upfront commission and trail commission.
Upfront Commission
Upfront commission is a one-time payment made by the lender when your loan is settled. This fee compensates the broker for their work in finding the right loan, preparing your application, and liaising with the lender.
While the amount varies between lenders, it is usually a percentage of the total loan amount. For example, on a $500,000 loan with an upfront commission rate of 0.65%, the commission paid would be $3,250. Depending on the agreement held between the broker and the aggregator, the broker either earns a percentage of the upfront commission (80-100%) or pays fixed fees.
Trail Commission
Trail commission is an ongoing payment made by the lender to the broker for the broker to manage your loan. It’s typically a small percentage of the outstanding loan balance and net of any offset accounts.
For instance, if your remaining loan balance is $450,000 and the trail commission rate is 0.15%, the broker would receive $675 per year. Depending on the agreement held between the broker and the aggregator, the broker either earns a percentage of the trail commission (80-100%) or pays fixed fees.
The Ongoing Value of a Mortgage Broker
The commissions brokers earn are not just for securing your loan—they also fund the long-term services they provide, including:
1. Loan Reviews and ongoing Rate Negotiations
Your broker will periodically review your loan to ensure it remains competitive. If interest rates drop or your circumstances change, they can recommend refinancing or negotiating better terms with your lender.
2. Future Loan maintenance (includes switching, increases, discharges)
Need to switch to a fixed rate, access equity, or change your repayment terms? Your Rosh Partners mortgage broker handles all the paperwork and liaises with the lender on your behalf.
3. Reviewing your equity & serviceability position
Thinking about buying your next home, or do you want to work out whether you can afford to purchase an investment property. As an existing Rosh Partners mortgage client, you gain access through your broker to free bank valuations. In addition, we have access to your loan information, making it easier for us to test your serviceability position.
4. Strategic Advice for the Future
For investors, this might include equity release strategies or planning for additional property purchases. For homeowners, it could mean creating a plan to pay off your loan faster or achieving other financial goals.
5. Guidance During Financial Hardship
If life takes an unexpected turn, your broker can help you explore solutions like temporary payment pauses, loan restructuring, or hardship arrangements.
Best Interest Duty: A Mortgage Broker’s Legal Obligation
One of the biggest advantages of working with a mortgage broker is that they are legally bound by the Best Interest Duty.
What Is the Best Interest Duty?
Introduced in 2021, the Best Interest Duty requires brokers to:
Prioritize your financial goals and needs over their own or the lender’s interests.
Conduct thorough research and comparisons to recommend the most suitable loan for your situation.
Provide transparency about their recommendations, including why they chose a particular loan and lender.
In simple terms, your broker must act in your best interests, ensuring the loan they recommend is the right one for you—not just the one that pays the highest commission.
Banks Do Not Have This Obligation
It’s important to note that banks are not bound by the Best Interest Duty. When you deal directly with a bank, their loan officer’s primary obligation is to the bank—not to you. This means their recommendations may prioritize the bank’s profits rather than your financial wellbeing.
What Is a Clawback Policy?
While upfront and trail commissions are standard, there is another aspect of broker payments that borrowers should understand: clawback policies.
A clawback policy is an agreement between the lender and the broker, allowing the lender to recover part or all of the upfront commission if the loan is repaid or refinanced within a specific period, usually the first 12–24 months. Clawback fees are never charged or passed onto clients.
For example:
If you repay or refinance your loan within 12 months, the lender may claw back 100% of the upfront commission.
If it happens within 24 months, they might claw back 50%.
Clawbacks protect lenders from incurring losses on loans that don’t generate long-term revenue. However, they can impact brokers significantly, as they may end up earning nothing for their efforts or even losing money if a clawback occurs.
Why Choose a Mortgage Broker?
By working with a broker, you gain:
Access to a wide range of lenders and products, not just one bank’s offerings.
Expert, unbiased advice tailored to your unique circumstances.
Confidence in knowing your broker is legally required to act in your best interests.
At Rosh Partners, we take pride in not only meeting the Best Interest Duty but exceeding it. Our goal is to build a long-term relationship, ensuring your mortgage works for you—not the other way around.
Contact us today to learn how we can guide you through your home loan journey, from securing the right loan to managing it effectively for years to come.
