How a mortgage broker gets paid and why
If you use a mortgage broker, you do not pay for their services – the lender that gets your business pays the broker for your business. Across the board the payments from most lenders does not vary much so there should be no bias in the lenders that a broker chooses to discuss with you. Generally, a mortgage broker gets paid 2 ways – an upfront fee and a trail fee.
The upfront is paid by the lender for the introduction of your business. This fee replaces many of the costs that the lender would have otherwise incurred in getting your business – staff wages, branches, advertising, electricity, telephones, superannuation, all those types of expenses.
The trail is paid each month based on the balance outstanding each month for the life of the loan. Many people have asked why trail commissions exist and that is a fair question – the commission is paid to the broker so he or she can continue to provide you with assistance and support over the course of your loan. Simply speaking, if you have a problem with your loan go back and talk to your broker and ask them to assist you, because they are being paid to look after you.
There is a perception out there that brokers eat caviar every day while sipping champagne and planning their next holiday. The truth is that the average broker earns a gross income of around $150,000 per year. From that they pay all their operating costs – rent, phone, electricity and so on. Then the tax man takes his share as well. Depending on the individual broker they would generally net around $50,000 to $80,000 per year.
Can a broker charge you other fees?
Like many things in life this is not a simple yes / no answer.
If you are applying for a personal or home loan a broker cannot charge a fee until a service has been provided, so you cannot be charged a fee upfront. If you are applying for a business loan however the broker can negotiate an upfront fee.
Some brokers charge what we call a ‘mandate’ or ‘commitment’ fee. This fee gives the broker exclusive rights to seek a loan on your behalf for an agreed period. If the broker does not get your loan approved on the terms agreed in the mandate agreement the fee should be refunded. If the loan is approved and you don’t go ahead you lose the fee. If a mandate fee is charged and the loan is taken up the mandate fee should be refunded as well.
There may be other fees applied in a limited range of circumstances, but these should only be in unusual circumstances, and should be explained clearly prior to a service being provided.
The information in this article does not necessarily represent the opinions or actions of all mortgage brokers. The article is provided for information purposes only and is not intended to constitute legal, financial or other professional advice and has not been provided with regard to the investment advice or objectives or circumstances of any particular reader. While based on information believed to be reliable no guarantee is given that the information is accurate or complete.