How Mortgage Brokers Get Paid (and Why It Matters)

In Australia’s home-loan market, the role of the mortgage broker often seems straightforward: you meet them, they help you find a loan, you settle on a property, and all is done. But beneath that simplicity lies a vital financial anatomy that matters not only for understanding costs, but for judging alignments and incentives. Here’s how it works -and what you probably didn’t kn

Two main channels: upfront and trail

When you engage a broker in Australia, you’ll often do so under the assumption that the service is “free” to you. That’s broadly correct: in most residential lending cases, you won’t pay the broker directly. Rather, the lender pays the broker a commission after the loan settles.

There are two principal types of payments:

• Upfront commission: Once your loan is drawn down and settled, the lender pays the broker a one-off fee. In Australia that typically ranges from about 0.50 per cent to 0.70 per cent (plus GST) of the loan amount. So for a $500,000 loan, the broker might receive around $2,500-$3,500.
• Trail (or trailing) commission: After settlement the broker may continue receiving smaller payments, typically based on a small percentage of the remaining loan balance each year (for example around 0.15 per cent of the balance per annum) while the borrower stays with that lender. (For a $500,000 loan, that would amount to around $750 per year, or $1,500 per year on a $1 million loan).
• This structure means the broker has ongoing interest in your loan remaining active rather than being refinanced too early.

Why this matters for borrowers

At first glance, “free to you” sounds like a win – and broadly it is. But as with most things behind the finance scenes, the full story carries nuance.

• Because the lender pays the broker, you do not pay the broker directly in many standard residential cases.
• But the lender’s commission cost can be engineered into their margins and product offers – so while you don’t see a fee, you may pay indirectly through the interest rate you pay or the loan features you’re offered.
• The existence of trailing commission means brokers may have an incentive for clients to stay with a lender rather than refinance – even if refinancing might better suit the borrower should their circumstances, or the market, dramatically change.
• For you as a borrower, understanding the broker’s remuneration structure helps you ask the right questions: “How are you paid?”, “Do you receive an upfront and trail from this lender?”.

One lesser-known facet: claw-backs and offset balances

Here is a detail many borrowers overlook: claw-back clauses and how offset account balances can reduce the commission a broker receives.

When a loan is discharged or refinanced within a certain period (often 1 – 2 years), the lender may require the broker to repay part or all of the upfront commission. That means if you switch your loan too quickly, the broker loses earnings. In that sense, if you intend to refinance early – for renovations, for example – it’s often best to mention this upfront to the broker so they know your intentions. Also, to ensure that you don’t get hit with discharge fees, application fees, and other potential break costs in the refinancing process.

Something else to consider: some lenders calculate the upfront or trailing commission on the net draw-down (loan amount minus any offset account balances). If you settle a $500,000 loan but have $100,000 in the offset, the broker’s commission might be calculated on $400,000.

Regulation and the “best-interests” duty

Australia’s regulatory regime tries to ensure brokers act for your interest, regardless of how they’re paid. For instance, under the “best-interests” duty, brokers must prioritise your needs when recommending a home loan.

However – a subtle but important point – lenders themselves are not bound by that same best-interests duty when dealing directly with you. That means using a broker can provide an additional assurance of impartial advice

What you should ask your broker

To safeguard your interests and understand how their incentives work, consider raising the following:

• Which lender commissions do you receive for my proposed loan? (Upfront and trail?)
• If I plan to refinance in 18 months, what happens to your commission – and will that affect your recommendation?
• Does the commission calculation take into account offset balances or redraws?
• Do you charge any fee directly to me (for instance for complex loans) in addition to the lender commission?

Final word

The payment structure of brokers in Australia has subtleties that matter. Understanding upfront vs trail commissions, claw-back conditions and offset-balance effects gives you better leverage as a borrower and helps align expectations. In a sense, it puts you on a firmer footing to ask: “Is this loan the best for me – or the one that pays best for my broker?”

And that question matters, because in the home-loan journey, the difference between “good” and “great” often resides in the details.