What does a mortgage broker cost? How brokers get paid, and where it could bend the advice

Are mortgage brokers free?

For most home loans, a mortgage broker costs you nothing directly. The lender pays the broker a commission when your loan settles, and you don't pay the broker a bill.

MoneySmart, the government's money guide, puts it the same way: lenders generally pay mortgage brokers a commission for distributing their products, so you don't pay them directly [1]. "Free" is close, but it isn't the whole answer. The broker is paid, by someone else, and how that pay works is worth knowing before you choose one. The rest of this guide sets it out.

How do mortgage brokers get paid?

Mortgage brokers get paid by the lender, in two parts: an upfront commission when your loan settles, and a smaller trail commission while the loan stays open. Both are a percentage of the loan, and the percentage varies by lender [1][2].

**Upfront commission.** Paid once by the lender, after your loan settles. It's a percentage of the amount you borrow, worked out on the loan you've drawn less any money in your offset, and the percentage differs from lender to lender.

**Trail commission.** A smaller percentage of your balance, paid by the lender each month while the loan stays with them. It falls as you pay the loan down, and stops when the loan is paid out or moved.

What is upfront commission, and what is it worked out on?

Upfront commission is the one-off amount a lender pays a broker after your loan settles. At most lenders it's worked out on the amount you've actually drawn, less any money sitting in your offset account, a little after settlement [2].

Because it's a percentage, a bigger loan pays a broker more upfront than a smaller one. That's an incentive worth naming, and it's one reason Money Brain's recommendation never turns on what a lender pays (part 11).

What is trail commission?

Trail commission is a small monthly payment a lender makes to the broker for as long as your loan stays with that lender. It's a percentage of your balance, so it falls as you pay the loan down, and it stops when the loan is paid out or moved [2].

At most lenders in our aggregator's commission guide, trail also stops while a loan is behind on its repayments, and some don't pay it back once the loan catches up [2].

What this means for you: trail pays a broker for a loan that keeps running well. It also pays a broker for a loan that stays where it is, and that second part is the conflict to watch (part 9).

Mortgage broker commission rates: why we don't print one

Mortgage broker commission rates differ from lender to lender, and often from one loan type to another at the same lender, so a single percentage would be wrong for most loans [2]. Money Brain doesn't print one here for that reason.

What you're entitled to is the figure on your own loan. MoneySmart says brokers must give you information about the commissions they may receive [1]. Ask for it before you choose a lender, and ask whether it differs between the lenders on your shortlist.

Does money in your offset change what a broker is paid?

Yes. At most lenders, money in your offset account lowers the upfront commission, because the upfront is worked out on the loan you've drawn less the offset balance [2]. At many lenders, trail is worked out the same way, month by month [2].

What this means for you: the broker's pay and your interest point in opposite directions here. An offset can save you interest, and it pays the broker less. Whether an offset suits you is a question about your money, not about the broker's commission, and that's how Money Brain treats it.

Does using a mortgage broker cost you more?

No. Lenders don't add the commission to your rate or fees: it comes out of the lender's own costs, the same way a bank pays its own staff. What a broker adds is the rest of the market. A bank can only offer its own loans; a broker can compare the lenders on their panel and knows which of them will approve a position like yours before you apply.

It doesn't change the rate or fees you pay; the same loan from the same lender costs you the same either way.

Do mortgage brokers charge a fee?

Most mortgage brokers don't charge a fee for an ordinary home loan, because the lender's commission pays for the work. Whether you call them a mortgage broker or a mortgage adviser, the question to ask is the same: is there any fee, and will it be in writing?

If a fee ever applies, it's for unusual work where no commission will follow, such as some commercial or specialist lending. It's agreed with you in writing before any work starts, never added afterwards.

MoneySmart says the same thing in its own words: where a broker charges a fee, you should get a written quote to sign first [1].

Where a broker's incentives point

A broker's pay creates incentives, and Money Brain would rather name them than leave you to guess. Darren Parker, who wrote this page, puts the first one plainly:

"Trail pays me to keep you where you are. I'm paid each month your loan stays open, so a broker has a reason not to suggest moving you, even when moving would save you money."

There are two more. Upfront commission is a percentage of the loan, so a bigger loan pays more (part 3). And money in your offset pays the broker less (part 6).

Different lenders also pay slightly different commissions. Any broker who says none of this affects anyone is asking you to trust a claim, not a check.

What is broker clawback, and how does it shape advice?

Clawback is the lender taking its upfront commission back from the broker when a new loan is paid out early. In Darren Parker's words:

"Clawback pays me not to move you early. If your loan is paid out within a set period after settlement, the lender takes its commission back from the broker. The period differs by lender. It's a real incentive to keep a new loan in place, and most borrowers have never heard of it."

Paid out means for any reason: a refinance to another lender, a sale, or the loan paid off. At most lenders the share taken back falls in steps the longer the loan has run, and after the window it's gone. A couple of lenders have no clawback at all [2].

What this means for you: if you think you might sell, refinance or pay the loan off in the first couple of years, say so at the start. It changes which loan is cheapest for you, and a broker should weigh your plans, not the clawback window.

The rule Money Brain holds against those conflicts

Money Brain's rule is that a recommendation is decided on the lowest net cost to you, and never on what a lender pays [3]. In Darren Parker's words:

"My recommendation is decided on the lowest net cost to you, and nothing else. What a lender pays me, and whether a commission could be clawed back, never enters it. You can check that: ask me to show you the comparison, the lenders I looked at and what each would cost you, and I will. If the right answer is a lender that pays me less, or staying with the loan you have, that's the answer."

The law backs this. Mortgage brokers must act in your best interests, and where a conflict exists, put your interests first [4].

What does 'lowest net cost' mean?

Lowest net cost means what a loan costs you in dollars once the rate, the fees and the features you'll use are counted together, not the headline rate alone. Money Brain compares the loans that fit you on rate, fees and features, in dollars.

So a loan with a slightly higher rate can come out cheaper than one with a lower rate and higher fees, and the answer can change with how long you expect to keep the loan. That's why the comparison is worked in dollars, and why you can ask to see it.

What is the best interests duty for mortgage brokers?

The best interests duty is the law that says a mortgage broker must act in your best interests when suggesting a loan, and where a conflict exists, put your interests first [1][4]. It sits in the National Consumer Credit Protection Act, and ASIC sets out how it works in its Regulatory Guide 273 [4].

A broker also has to be able to show how they met it. ASIC's guide warns brokers that keeping records for too short a time puts them at risk of being unable to show how they complied [4]. That's one reason Money Brain writes down why a loan was chosen, and can show you the comparison behind it.

What a broker has to tell you before you apply

A broker must give you information about the commissions they may receive [1]. At Money Brain, what you're told starts with the credit guide we email after the first call, which says who we are and the licence we work under, with a privacy consent.

The application, and our credit proposal setting out the loan, come to you to sign before anything is lodged. If anything about how we're paid on your loan isn't clear by then, ask before you sign.

How Money Brain chooses a lender

Money Brain can only lodge with lenders on our panel, so the comparison happens across that panel. Within it, we run your income, spending and debts through each lender's own borrowing rules, then compare the loans that fit on rate, fees and features, in dollars.

When the working is done, we take you through the options on a video call, and you decide which way to go. The whole path, from first message to settlement, is on how it works.

What happens to trail after your loan settles?

Trail keeps being paid while your loan stays put, which is exactly why Money Brain doesn't leave a loan alone once it settles. We look at your loan again about six months after settlement, then keep it in our yearly review.

A rate or a fixed term that suited you at settlement can stop suiting you later. If moving would now cost you less, that's the answer, whatever it does to the trail. See what a home loan health check covers and when refinancing pays.

Is a mortgage broker worth it?

A mortgage broker is often worth it when your situation isn't simple, because knowing which lender will approve you, and on what terms, matters before you apply. If your bank already offers you a sharp rate on a simple loan, going direct can be fine.

Lenders read the same pay, the same debts and the same property differently. A broker who works through each lender's rules first can tell you where an application is likely to land, and where it isn't, before an application is made.

Mortgage broker vs bank: which is better for you?

**Going direct can be right** if your situation is simple, your bank offers you a sharp rate, and you'd rather deal with one lender. A bank's staff are paid by the bank and can only offer the bank's own loans.

**A broker earns their place** when something about your position isn't standard, your income, your deposit, your job or the property, and the question is which lender will say yes, on what terms, before you apply.

Either way, the cost of the loan itself is the same: the same loan from the same lender costs you the same whether you go direct or through a broker.

Can you change mortgage brokers?

Yes. Your home loan is between you and the lender, not the broker, so you can ask a different broker to look at your loan at any time.

A new broker can review whether your loan still suits you, and if a move would cost you less, arrange it. If your loan is still new, ask how clawback (part 10) affects the broker you're leaving and the one you're moving to, so you know whose incentives are in play.

Who Money Brain is, and the licence it works under

Money Brain is the trading name of NU Home Loans Pty Ltd (ABN 79 620 942 065). Darren Parker is Credit Representative 501592, authorised under Australian Credit Licence 389328, held by our aggregator, Connective Credit Services Pty Ltd [5]. We're based at Hope Island on the Gold Coast, and work with clients across Australia.

You deal with Darren from the first call through to settlement. More about how Money Brain works is on about Money Brain.

So what does a mortgage broker cost you?

For most home loans, nothing directly: the lender pays the broker an upfront commission and a trail, and the same loan costs you the same either way. What it can change is the broker's incentives, which is why Money Brain's recommendation is decided on the lowest net cost to you, and nothing else.

Your first move

You now know how a broker is paid and where that pay could pull. The one question left is what the cheapest suitable loan is for you, and what each lender on the shortlist would pay the broker who arranges it.

When you're ready, the closing section below is the simplest way to ask it.