Because a Mortgage Broker essentially does the job of a banker, lenders are happy to pay a commission in exchange for a successful loan application – meaning the customer doesn’t have to pay them anything. There are two way a Mortgage Broker gets paid: upfront commission and trail commission.
This is a one-time commission paid roughly 30 days after settlement. Unfortunately, some customers assume a Mortgage Broker has their commission in mind and not the customers’ welfare – but I assure you this happens very rarely. A Mortgage Broker is always obliged to disclose their commission to you, but I wouldn’t worry about bias recommendations unless their commission exceeds 0.70% + GST. You can see a full break down of all well-known banks commission rates further down the page.
If a customer pays out or refinances their home loan within 2 years, a lender can enforce a “Clawback” clause upon a Mortgage Broker, forcing the Broker to pay back their upfront commission. While this upsets many Mortgage Brokers, it can work in the favour of the customer, ensuring the Mortgage Broker puts your loan with a bank that you will be happy with, else they will have to pay their commission back.
Trail Commission is another mechanism to ensure a Mortgage Broker puts the customer with a bank they will be happy with. Every month that the customer remains with the same lender, the introducing Mortgage Broker gets paid a small commission (the amount usually increases slowly over the first 5 years). These payments stop when a customer pays out their loan, or refinances through another bank or Mortgage Broker.
How much does each Lender pay?
As you can see, although payments are unregulated, the difference between the banks commission rates is very minimal. While commissions may appear to encourage bias, this model is what enables Mortgage Brokers to provide their services to the customer, without charging them.