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How are mortgage brokers paid?
The majority of mortgage brokers get paid a commission by lenders. This means banks, credit unions and other specialist lenders pay mortgage brokers commissions for bringing them business (i.e. successfully facilitating a home loan). This is usually paid in two different ways:
Upfront commission
Upfront commission refers to when the broker is paid a lump sum by the lender for securing a home loan on behalf of their client.
It’s often calculated as a percentage of the loan amount (i.e. 0.60% to 0.70%) and can vary depending on factors such as the type of loan and the lender.
Example: A home loan of $800,000 with an upfront commission rate at 0.70% means the broker will get paid roughly $5,600 plus GST. Typically, the commission is paid to the broker after settlement; however, should the borrower switch lenders within 1-2 years, they may be required to reimburse the upfront commission to the lender. This is known as a ‘clawback provision’.
Trail commission
Trail commissions are an additional ongoing payment made by lenders to brokers for as long as the client remains on the lender’s books. Otherwise known as a ‘customer service cost’, a mortgage broker may receive a ‘trail’ commission for years after initially referring the borrower.
The trail commission is a percentage of the loan balance, usually between 0.10% to 0.30% each year, but if the borrower switches to a different lender or if they stop repaying the loan (defaults), the trail commission stops.
Example: A home loan of $800,000 that reduces by $25,000 each year with a trail commission rate of 0.20% will earn a broker roughly $4,650 plus GST in the first three years. In this example, the total trail commission earned in the first year is $1,600, $1,550 in the second year, and in the third year it falls to $1,500.
It’s important to note that the trail commission structure will vary between lenders. For instance, a bank might pay 0% for the first year, 0.10% for the second year, 0.20% for the third year, and a different rate thereafter. Trail commissions are normally paid to brokers in monthly instalments.
Do mortgage brokers charge a fee?
Much less commonly, some mortgage brokers may charge an upfront fee for their services, either on top of their commission or as a one-off payment billed to their client. Most of the time, it’ll cost you nothing to engage with a broker as they’re paid the upfront commission by the lender upon settlement.
If a broker does charge an upfront fee, it’ll likely be because:
- You have a complicated situation, like if you’re applying for a home loan with bad credit or if you’re a self-employed individual with low documentation (i.e. no payslips)
- Your home loan amount is under $450,000. A broker might charge a fee to cover the gap between what the lender would pay them for their business’ minimum loan size
- You’re refinancing or repaying the loan within 1 to 2 years
- You’re applying for a commercial or business loan
Thankfully, mortgage brokers today must disclose details on how they’re paid. This means that clients should be informed during the early consultation stages of how their broker earns money. Transparency aside, it’s always worth weighing up the pros and cons of using a broker, particularly if you’re confident in navigating the home loan market by yourself.
Tip: You’ll save money in interest by paying any brokerage fee upfront, instead of adding it to your loan amount.
How much do mortgage brokers earn per loan?
Broadly speaking, a mortgage broker’s commission for referring a borrower ranges from $600 to $700 for every $100,000 borrowed.
Therefore, if a broker facilitates a loan of $800,000, they’ll receive approximately $4,800 - $5,600 in commission, plus GST. If there’s a trail commission included, the mortgage broker will also receive a monthly payment of 0.10% and 0.30% of the loan amount.
Factors that affect a mortgage broker's commission
The biggest factor that affects a mortgage broker’s total commission earned is the size of the loan. For example, a smaller home loan of $350,000 at 0.70% will equal roughly $2,450 (plus GST), while a larger loan of $1 million will mean the broker banks $7,000 (plus GST).
Regardless of the loan amount, each mortgage application takes the same amount of time to prepare and lodge. This means that brokers generally prefer to handle loans that are above $450,000. That’s not to say a mortgage broker won’t take on a smaller loan, but rather highlights the difference in overall commission for the same amount of work.
Other factors include the commission rate paid by the lender (usually between 0.60% and 0.70%), and whether there’s a trail commission on top. The trail commission rate will also play a part in how much the broker earns from a particular product and lender.
How much do mortgage brokers make per year?
The average annual earnings for a mortgage broker in Australia is $181,199 before costs, according to the latest Industry Intelligence Service report by the Mortgage & Finance Association of Australia (MFAA). This national average remuneration includes the upfront and trail commission a broker earns, on top of any base salary if the broker belongs to a brokerage firm.
Here are the estimated average annual upfront commission per broker from residential lending across each state (Oct 2022 - March 2023):
- NSW/ACT: $113,376
- Qld: $110,545
- Vic: $108,901
- SA: $103,113
- WA: $92,403
- Tas: $89,859
- NT: $66,405
According to the MFAA report, the estimated national average annual trail commission for brokers from residential lending is $73,096.