Most people assume they pay their mortgage broker. For a standard home loan in Australia, you don’t. The lender pays the broker once your loan settles, and the rate you get is the same rate you would have been offered had you walked into the branch yourself.
That arrangement raises a fair question, and it is the one we get asked most: if the bank pays the broker, whose side is the broker on? This guide sets out exactly how broker pay works, what the numbers look like, what the law requires, and the situations where a broker will charge you a fee directly.
How do mortgage brokers get paid?
A mortgage broker is paid by the lender, not the borrower. There are two payments:
- Upfront commission — a one-off payment when the loan settles, calculated on the loan amount.
- Trail commission — a smaller ongoing payment, paid monthly for as long as you keep the loan.
Both come out of the lender’s margin. Neither is added to your interest rate, and neither appears on your loan statement.
How much is upfront commission?
Upfront commission on a residential home loan usually sits between 0.65% and 0.70% of the loan amount, plus GST. A few lenders sit slightly above or below that band, but the spread is narrow.
On a $700,000 loan at 0.65%, the upfront is $4,550 before GST.
That figure is not what the broker takes home. It is paid to the broker’s aggregator, which takes a split before passing the balance on. The broker then pays their own costs out of what is left: licensing, professional indemnity insurance, software, staff, compliance, and the cost of the applications that never settle.
Offset balances reduce the upfront
Since the industry reforms that followed the 2017 ASIC review of broker remuneration, most lenders pay upfront commission on the drawn loan amount net of any money sitting in an offset account at settlement.
If you borrow $700,000 and park $100,000 in the offset on day one, the broker is paid on $600,000, not $700,000. The point of the change was to stop brokers having a reason to talk a client into a bigger loan than they need.
How much is trail commission?
Trail is typically 0.15% to 0.20% a year on the outstanding loan balance, paid to the broker monthly.
On a $700,000 loan at 0.15%, that is about $1,050 over a full year, or roughly $87 a month — and it falls every year as you pay the loan down.
Trail is the reason a decent broker still takes your call three years after settlement. They are being paid to keep you as a client, which means they have a financial reason to make sure your rate stays competitive rather than quietly drifting.
What is clawback, and why does it matter to you?
If you repay or refinance the loan shortly after settlement, the lender takes the upfront commission back off the broker. This is called clawback.
The usual structure is:
- Loan discharged within 12 months — 100% of the upfront clawed back
- Discharged in the second year — around 50% clawed back
- After two years — no clawback
Clawback applies to the broker, not to you, and the lender does not charge you for it. But it is worth knowing about for two reasons.
First, some brokers pass clawback on to the client through a contract clause. That should be disclosed to you in writing before you apply. Read it, and ask about it if you can’t find it.
Second, clawback explains a behaviour you might otherwise misread. A broker who suggests waiting a few months before refinancing a loan they wrote last year may be protecting their own commission rather than giving you the best advice. Ask them directly whether clawback is a factor in what they are recommending. A good one will tell you.
Does commission change which lender a broker recommends?
It is the right question to ask, and the honest answer has two parts.
The commission rates themselves are close enough across the major lenders that the difference on a single loan is usually a few hundred dollars. That is not enough to make a broker recommend a materially worse product, and the difference in what you would pay in interest over the life of a badly chosen loan dwarfs it.
The stronger protection is legal. Since 1 January 2021, mortgage brokers in Australia have been subject to a Best Interests Duty under the National Consumer Credit Protection Act. The duty requires the broker to act in your best interests, and where there is a conflict between your interests and theirs, to prioritise yours. It is enforced by ASIC and it applies to the recommendation itself, not just to the paperwork.
This is one of the clearer differences between using a broker and going straight to a lender — we compare the two in detail in mortgage broker vs bank. Bank staff are not subject to the same duty. A lender’s own home loan specialist can only offer that lender’s products, and no obligation exists to tell you a competitor is cheaper.
What brokers must disclose to you
Before you submit an application, your broker has to give you a Credit Guide and a Credit Proposal Disclosure document. Between them, these must set out:
- the lenders on the broker’s panel
- the commission the broker expects to receive, in dollar terms, for the loan being recommended
- any fee you will be charged directly
- who owns the broker’s business and the aggregator, where there is a lender relationship
- how to complain, and the external dispute resolution scheme the broker belongs to
If you have not been given a dollar figure for the commission before you sign, ask for one.
When a mortgage broker does charge you a fee
Standard residential lending is almost always fee-free to the borrower. Fees usually appear in four situations:
- Commercial and business lending — commission structures vary widely by lender and deal, and many brokers charge a fee for the work involved in packaging a commercial application.
- SMSF loans — a small lender panel, heavier documentation, and a longer assessment process.
- Complex or non-conforming files — self-employed applicants with unusual income, credit impairment, trust and company structures, or loans that need to be argued individually with a credit assessor.
- Small loan amounts — where the commission would not cover the hours the file takes.
Any fee has to be disclosed and agreed in writing before the work starts. If a broker will not put the fee in writing, that is your answer.
Questions worth asking your broker
- How many lenders are on your panel, and how many did you compare for me?
- What is the dollar commission you will receive on this loan?
- Does any lender pay you more than the others, and did that affect this recommendation?
- Do you pass clawback on to me? Show me the clause.
- Will you review my rate each year, and what does that review involve?
The short version
The lender pays your broker roughly 0.65% of the loan up front and about 0.15% a year after that. You pay nothing for a standard home loan, your rate is not marked up to cover it, and the broker is legally bound to put your interests ahead of their own. Fees appear on commercial, SMSF and genuinely complex files, and they must be agreed in writing first.
If you are choosing a broker, our guide to mortgage brokers in Australia covers what to look for. The commission is not the thing to worry about. Whether the broker compared enough lenders, and whether they will still be there when your rate needs renegotiating, are the things to worry about.
This guide is general information only. It does not take your circumstances into account and it is not financial or credit advice. Commission rates vary by lender and change over time — ask your broker for the figures that apply to your loan.