This is one of the questions I actually want more people to ask, not fewer. If you don’t understand how your mortgage broker gets paid, it’s hard to fully trust the advice you’re getting, and that’s the opposite of what a good broker relationship should feel like. So here’s a completely transparent breakdown of exactly how the money works, because you deserve to know before you sit down with anyone, including me.
For the vast majority of home loans, you don’t pay your mortgage broker directly. Instead, the lender pays the broker once your loan settles. This might sound like it creates a conflict of interest, and it’s a fair thing to be cautious about, so let’s walk through exactly how it works and how the law addresses that exact concern.
The first payment a mortgage broker receives is called an upfront commission, paid by the lender as a one off amount shortly after your loan settles. It’s calculated as a percentage of your loan amount, and industry figures typically put this in the range of roughly 0.55 percent to 0.70 percent of the loan, depending on the lender.
To put a number on it, on a $600,000 loan at a 0.65 percent upfront commission rate, that works out to around $3,900 paid by the lender to the broker at settlement. This payment compensates the broker for everything that happens before you even sign anything, including the initial discovery conversations, comparing your situation across lenders, preparing and submitting your application, and managing the process through to settlement.
The second type of payment is called trail commission, and it’s paid on an ongoing basis, usually monthly, for as long as your loan remains active with that lender. It’s a much smaller percentage than the upfront payment, typically somewhere around 0.10 percent to 0.20 percent per year, calculated on your outstanding loan balance rather than the original loan amount.
Using that same $600,000 loan as an example, at a 0.15 percent trail commission rate, that’s roughly $900 a year in the first year, and it reduces over time as you pay down your loan balance. Trail commission exists partly to compensate brokers for ongoing service and support over the life of the loan, and it also has a secondary effect worth knowing about. Because it’s tied to keeping you in the loan rather than switching you around, it actually works against a broker’s incentive to move you between lenders unnecessarily, which is exactly the kind of behaviour, often called loan churning, that regulators watch closely.
Here’s something that isn’t always explained clearly, and it directly affects how a broker’s advice is structured. If you refinance or pay off your loan within roughly the first one to two years of settlement, the lender can claw back some or all of the upfront commission it paid the broker. This means a broker genuinely has no financial incentive to place you in a loan that isn’t going to be a good long term fit, since doing so and having you leave early can cost them the commission they were paid in the first place.
In most cases, no. For the great majority of standard home loan applications, brokers do not charge the borrower anything on top of the lender paid commission. Some brokers do charge fees in certain circumstances, generally for more complex commercial or specialist lending scenarios, but if that applies, they’re required to disclose the fee to you in writing, generally through a Credit Quote document, before any work begins. You should never be surprised by a fee after the fact, since transparency about cost is part of what the law requires upfront.
This is where the conflict of interest question I mentioned earlier gets properly addressed, and it’s worth understanding in detail because it’s the mechanism that keeps commission structures from distorting broker advice. ASIC’s Regulatory Guide 273 sets out how mortgage brokers must comply with the Best Interests Duty, which came into effect on 1 January 2021 under the National Consumer Credit Protection Act. When there’s a conflict between a consumer’s interests and a broker’s own interests, including a financial one, the law requires the broker to prioritise the consumer.
Alongside the Best Interests Duty, a separate ban on conflicted remuneration also commenced on the same date. This specifically targets any commission structures that could reward a broker for recommending a loan that isn’t in your best interests, such as higher commissions tied to writing larger loans than a client actually needs, or bonus commissions for hitting volume targets with a particular lender. Both of these reforms came directly out of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and they fundamentally reshaped how broker remuneration is allowed to work in Australia.
One of the fair questions people ask is whether a broker might be tempted to recommend whichever lender pays the highest commission. In practice, commission rates are set by lenders and are broadly similar across the market, generally within a narrow band of that 0.55 to 0.70 percent range for upfront commission. Because the difference between lenders’ commission rates is relatively small, and because the Best Interests Duty legally requires your circumstances to drive the recommendation regardless, there’s very little room, and even less legal room, for commission size to meaningfully steer broker advice toward one lender over another.
It’s still a completely fair thing to ask your broker directly, and a properly transparent one will tell you plainly how they’re paid on your specific loan and confirm that it hasn’t influenced the recommendation.
I know it can feel a little strange that a service costs you nothing directly, so it’s worth understanding why that’s the case rather than just accepting it at face value. The lender paid commission model means expert, personalised loan advice and comparison across dozens of lenders is available to almost every borrower, not just those who can afford to pay a professional adviser out of pocket for the service. It’s part of the reason mortgage brokers now facilitate the vast majority of new home loans in Australia, since the combination of no direct cost to you, a legal duty to act in your interests, and access to a genuinely wider range of lenders than you’d find walking into a single bank branch adds up to a strong value proposition for most borrowers.
How is your commission structured on this specific loan?
A transparent broker should be able to answer this clearly and without hesitation.
Does the commission vary meaningfully between the lenders you’re comparing for me?
If it does, ask how that’s been factored into the recommendation, since disclosure of any such difference is part of the broker’s legal obligation.
Are you charging me any fee directly, and if so, when and how?
This should be disclosed to you in writing before any work begins, not raised after the fact.
Are you a member of the MFAA or FBAA, and do you hold a current Australian Credit Licence or operate as an authorised credit representative?
This adds a further layer of accountability on top of the legal requirements already in place.
FAQs
No. The Best Interests Duty specifically requires brokers to act in the interests of the borrower, not the lender, regardless of who technically issues the payment. This is precisely the legal structure designed to separate who pays a broker from whose interests they're required to serve.
No. Broker commissions are a cost of business for the lender, built into how they operate, not an additional charge passed on to you through a higher interest rate. Research has shown broker arranged loans carry rates comparable to those arranged directly with a bank.
If it happens within the clawback period, generally the first one to two years, the lender may reclaim some or all of the upfront commission from the broker. Outside that window, this generally doesn't apply.
This isn't standard practice for most residential lending, since the lender paid commission model is how nearly all brokers operate for standard home loans, but it's a reasonable question to raise if you have a preference around how your broker is compensated.
It's actually the opposite. Trail commission is paid for as long as your loan remains active, which gives a broker an ongoing incentive to stay engaged and available to you well beyond the day your loan settles.
A broker is required to disclose their commission structure to you, and you can also verify their licence details on the ASIC Connect register. Membership with the MFAA or FBAA adds a further accountability layer if you ever have concerns.
If you’d like to know exactly how commission works on your own loan before we go any further, just ask me directly, I’d rather you feel completely confident about that before we discuss anything else. Take a look at our Home Loans page for more on how we work, and our Home Loan Refinancing page if you’re weighing up a switch.
A fast business loan can genuinely settle within 24 to 48 hours in the right circumstances, but “instant approval” in the literal sense doesn’t exist
Getting a start up business loan is harder than financing an established business, because the thing most lenders rely on most, trading history, doesn’t exist
Having bad credit makes getting a business loan harder, not impossible. Mainstream lenders rely heavily on your credit file, but it isn’t the only thing
