Understanding Mortgage Broker Compensation
Working with a mortgage broker often provides valuable guidance and access to numerous lending options when seeking a home loan. But how do these professionals get paid? Let’s break down mortgage broker remuneration.
The Commission Model
Primarily, mortgage brokers earn their income through commissions paid by the bank or lender that ultimately provides your home loan. These commissions have two main components:
- Upfront Commission: This is a one-time payment, calculated as a percentage of the total loan amount, which the broker receives when your loan settles.
- Trail Commission: This is a smaller, ongoing commission paid to the broker by the lender throughout the life of your loan. It compensates the broker for their continuing support, such as addressing your questions and contacting the lender, even after your loan is finalised.
Clawbacks: Protecting Lenders
To minimise risk, many lenders have a “clawback” policy. If you refinance or sell your property within the first two years of the loan, the broker might need to repay a portion of their upfront commission:
- Year 1: 100% of the upfront commission must be repaid.
- Year 2: 50% of the upfront commission must be repaid.
Benefits for You
Crucially, the trail commission system benefits borrowers. It encourages your broker to build a lasting relationship with you, ensuring they provide excellent service for the long term – not just in securing your initial loan.
Furthermore, in most cases, you won’t pay any direct fees to a mortgage broker. Their compensation comes from the lender, offering you a convenient and cost-effective way to find the right mortgage.
Special Cases: When Fees May Apply
Occasionally, a broker may charge a fee, especially for highly complex loans (such as SMSF loans, intricate self-employed borrowing situations or zero-end bridging loans). This usually happens when their expertise is significant, but the potential commissions from lenders are low or non-existent.
Your First Finance: Clarity and Transparency
At You First Finance, we prioritize transparency. If any fees are applicable in your situation, we’ll discuss them clearly upfront. Our goal is to find you the best possible home loan, ensuring you fully understand all the costs involved.
Have more questions about mortgage brokers or the home loan process? Contact You First Finance today!
