What is a mortgage broker?
A mortgage broker is a middleman who deals with banks or lenders to secure a mortgage on your behalf, typically from a panel of lenders.
Do you pay a fee for a mortgage broker?
No, the borrower doesn’t pay a mortgage broker a fee for their service. Additionally, they aren’t typically paid a salary by an employer. Instead, most brokers are paid a commission by the banks and lenders they work with for bringing them your business.
How do mortgage brokers get paid?
Brokers are remunerated through commissions, which can be broken down into upfront commissions, trail commissions and soft-dollar benefits.
The first two are direct payments from lenders for referring clients, while the third is paid indirectly through perks.
- Upfront commissions: A commission paid to a broker by a lender upon successfully signing up a customer for a mortgage. The value of upfront commissions vary between lenders.
- Trail commissions: Trail commissions are smaller than upfront commissions, and are paid by lenders to mortgage brokers for each year a borrower remains on a home loan. The 2017 Banking Royal Commission recommended the removal of these kinds of commissions, but brokers can still receive them.
- ‘Soft-dollar’ benefits: ‘Soft dollar’ benefits are non-monetary ways lenders might reward mortgage brokers. An example might be entry to a loyalty program, offering more favourable commission rates, or travel and hospitality-related bonuses such as trips to overseas destinations for conferences.
How do brokers’ commissions affect your home loan?
Since the Best Interests Duty came into effect in January 2021, brokers are bound to assess a consumer’s best interests with respect to a product’s cost and whether it realistically offers the consumer good value for money or a net benefit compared to other options.
This means previous ASIC warnings that commission-based payment structures could create a potential conflict of interest are no longer relevant. Prior to that, the regular raised concerns that a mortgage broker could be incentivised to channel customers to a particular lender, and may work in their own interests rather than their clients’.
If you are still unsure whether your broker is getting you a good deal, you can ask them what other options are available, and what commissions and perks (if any) they are receiving from the lender. Your broker will also have to provide you with disclosure documents, based on their obligations under the National Credit Act and other regulations.
On the flip side, it’s also possible that some mortgage brokers have access to better deals via their panel of lenders than what you’d be able to find on your own. This could mean that you are offered a more favourable interest rate or a mortgage with lower fees than if you approached a particular lender directly.
Above all, it is important to do your own research when deciding on a home loan, even if you are working with a mortgage broker. There may be other banks and lenders who aren’t on your mortgage broker’s panel that can offer you a more favourable home loan rate.
