When you need to get a home loan you have two options: do copious amounts of researching, ringing around and comparing yourself, or, get a broker to do all that work for you while you go to the beach and enjoy your free time.

Sounds great, but how much does it cost to use a mortgage broker?!

Fair question. I can understand why people would be reluctant to use a broker if there were fees involved (as if buying a house isn’t enough of a splurge).

The answer?

It doesn’t cost anything to use a broker. The vast majority of mortgage brokers, at least, don’t charge a fee (myself included). And no, there are no sneaky loopholes or future fees that will sneak up on you.

So… how do mortgage brokers earn money?

In the interests of transparency, we want to make sure our clients are well aware of how we earn money. Mortgage brokers get paid a commission from the bank after the loan settles – which is why they don’t need to charge a fee to their clients.

Mortgage brokers only get paid a commission if you go ahead with the loan they’ve recommended and arranged for you.

Broker commission payments from banks are made up of two components: an upfront commission and a trailing commission (an ongoing monthly payment for the life of your loan).

The upfront commission is typically a percentage of the loan amount. While the exact percentage can vary depending on the bank and the type of loan, most lenders offer brokers fairly comparable commission payments. This should help reassure customers that loans recommended to them aren’t influenced by the payment to the broker. Rather, recommendations are based on merit and compatibility with your needs.

The trail commission is a smaller percentage of the outstanding loan amount and is paid on a regular basis (usually monthly). The bank makes this payment to the broker for as long as the loan is active.

Essentially, the upfront commission pays brokers a significant proportion of their income to cover their time and expertise while arranging your loan, while the trail commission incentivises brokers to provide ongoing service and ensure you remain in a suitable loan long term.

It’s worth noting that mortgage brokers in Australia are required to disclose all fees and commissions they receive from banks to their clients, as part of the National Consumer Credit Protection Act. This means that borrowers should be aware of any fees or commissions their mortgage broker may receive.

The takeaway

It doesn’t cost you anything extra to use a mortgage broker, so make sure you save my contact details for when you’re ready to get a home loan, or to review your existing loan (remember, if it’s been a few years since you re-evaluated your home loan, there’s a good chance you could find a better rate and save money off your monthly repayments).

When you consider how high the costs associated with buying a house are, I think you’ll agree it’s a great deal to have a dedicated industry professional to conduct research, compare loans and then recommend a loan option for you – without charging a fee for their service.

Do you still have questions about how this works? Drop a comment below to start the conversation, or feel free to book a time with me directly for a chat.

Lindsay.