How mortgage brokers get paid, and what it costs you
Last checked
As at Next checkLenders generally pay mortgage brokers a commission, worked out as a percentage of the loan amount, with an upfront payment and an ongoing (trail) payment. Brokers must tell you what commission they may receive and, by law, act in your best interests. A broker who charges you a fee must first set it out in a written quote you accept.
Who pays a broker: upfront and trail commission
Moneysmart, the government's consumer site, says lenders generally pay mortgage brokers a commission for distributing their loans, so you do not pay the broker directly. The commission is a percentage of the loan amount and typically has an upfront payment and an ongoing one.[1] The ongoing payment is known as trail commission.[4]
Rules that brokers have had to comply with since 1 January 2021 limit how that commission can be worked out:[4]
- Based on what you draw down. In the first year of a home loan, commission (upfront or trail) can only be worked out on the amount you have drawn down. Money in your offset accounts is taken off first. Lines of credit, reverse mortgages and construction or renovation loans are outside this cap.[4]
- No volume or campaign bonuses. Payments that depend on how much of a lender's loans a broker arranges, and higher commission offered for a limited sales campaign, are banned.[4]
- No conflicted remuneration. A benefit that could reasonably be expected to influence the help a broker gives you is "conflicted remuneration". Brokers and their credit representatives must not accept it in the circumstances the regulations set.[2]
Clawbacks: when a lender takes commission back
Many lenders have clawback arrangements. They can take back some or all of the commission they paid if your loan ends before a minimum period. One example is refinancing early. The government's explanatory statement for the rules notes that clawbacks add to the cost of switching. That can discourage brokers and borrowers from looking at new loans.[4]
Under the rules in force since 1 January 2021, a clawback has three limits:
- it can apply for no more than two years from when the loan is first drawn down
- it cannot recover more than the commission paid
- it cannot be passed on to you.[4]
Fees a broker may charge you
Some brokers also charge a fee. Any fee must be in a written quote that says the most you will pay and what it covers. You must accept the quote before the broker suggests a particular loan or helps you apply.[2] Moneysmart adds that a broker is not entitled to ask for a fee before providing their services.[1]
Zafar's position: Our service to you is free but other fees may apply. Zafar does not charge you a fee: he is paid a commission by the lender whose loan you take out. Lenders may charge their own fees, such as application or establishment fees, and Zafar will tell you about any of them upfront, before you apply.
What you are told, and when
Two documents tell you what a broker is paid.
- The Credit Guide, given as soon as practicable after it becomes apparent the broker is likely to help you. It sets out any fees you pay. It also gives a reasonable estimate or range of the commission the broker is likely to receive from lenders, and how it is worked out. It names the lenders the licensee does the most business with (up to six).[2] A credit representative gives you their own Credit Guide together with the licensee's.[2]
- The credit proposal disclosure document, given at the same time as the broker suggests a particular loan. It contains a reasonable estimate of the total commission on that loan, and of the fees you are likely to pay the lender to apply.[2]
How Zafar is paid. Zafar is a Credit Representative of Mortgage Australia Group Pty Ltd. He gives you a Credit Guide generated for you, covering both him and Mortgage Australia Group. Mortgage Australia Group's standard Credit Guide terms say:
"Commissions are paid based on a percentage of the loan balance that is drawn down which in most cases will be net of any amounts you hold in an offset account."
Those terms also say Zafar may receive all or part of the commission paid to Mortgage Australia Group. You can ask for a reasonable estimate of it and how it is worked out. More on how Zafar and Mortgage Australia Group are paid.
The best interests duty: what it requires
A mortgage broker, and a credit representative of a broker, must act in your best interests in relation to the credit assistance. If the broker knows, or ought to know, that your interests conflict with their own, they must give your interests priority.[2] ASIC's guidance says brokers have had to comply from 1 January 2021.[3]
Disclosure is not enough on its own. ASIC says a broker cannot meet the conflict rule merely by disclosing a conflict or having you consent to it. Recommending loans on the basis of commission rather than your needs would breach it.[3]
Broker or going to a lender directly: the trade-offs
Neither route is right for everyone. Going directly to a lender means dealing with that lender's own loans and process. A broker compares loans from the lenders they work with, handles the application and is bound by the best interests duty. The lender pays the broker: a conflict the law manages rather than removes. Either way, the lender makes the credit decision.
| Item | Through a mortgage broker | Going to a lender directly | Source |
|---|---|---|---|
| Loans you can compare # | Loans from more than one lender: that is part of the legal definition of a mortgage broker (s15B). No broker can offer every lender; Zafar works with the lenders on Mortgage Australia Group's panel. | That lender's own loans. | [2] |
| Best interests duty # | Must act in your best interests, and give your interests priority in a conflict (ss158LA, 158LB, 158LE, 158LF). | The duty applies to mortgage brokers, and the definition of a mortgage broker excludes a business that acts as the lender on most of the home loans it arranges (s15B). | [2] [3] |
| Checking the loan is not unsuitable # | Must make reasonable inquiries and assess whether the loan is unsuitable before suggesting it (ss115 to 117). | Must assess whether the loan is unsuitable before entering it with you (ss128 and 129). | [2] |
| Credit Guide # | Includes any fees you pay and an estimate or range of the commission it is likely to receive (s113); a credit representative also gives their own (s158). | Includes the lender's name, licence number and how to complain (s126). | [2] |
| Fees # | A broker fee only under a written quote you accept first (s114). The broker must estimate the lender's fees in the credit proposal disclosure (s121). | The lender may charge its own fees. | [2] |
Questions to ask any broker
Moneysmart suggests asking: "How do you get paid for the advice you're giving me? Does this differ between lenders?" and "Why did you recommend this loan to me? Why is this loan in my best interests?"[1] Two more that the documents above answer:
- Which lenders do you work with, and which can you not offer?
- Will you charge me a fee, and is it in a written quote?
General information only. It does not take into account your objectives, financial situation or needs, and it is not a recommendation to enter into any credit contract. Approval is the lender's decision, made on its own criteria.
What changed
- : Added Mortgage Australia Group's standard Credit Guide wording on how commission is worked out. Corrected when the Credit Guide is given and which conflicts the best interests duty covers, to match the Act.
- : Page created. Every statement checked against the official pages listed below.
Want to see how Zafar is paid on your loan?
Read the Credit Guide, then ask Zafar to walk you through the commission and lender fees on any loan he suggests.
Read our Credit Guide Call Zafar 0402 357 860
Sources
- Moneysmart (ASIC), Using a mortgage broker. Retrieved .
- Federal Register of Legislation, National Consumer Credit Protection Act 2009, Compilation No. 52 (in force 1 July 2026), volume 1. Retrieved .
- Australian Securities and Investments Commission, Regulatory Guide 273 Mortgage brokers: Best interests duty (June 2020). Retrieved .
- Federal Register of Legislation, Explanatory Statement, Financial Sector Reform (Hayne Royal Commission Response - Protecting Consumers) (Mortgage Brokers) Regulations 2020. Retrieved .
Common questions
Do mortgage brokers charge a fee in Australia?
Lenders generally pay brokers a commission, but some brokers also charge a fee. A broker can only charge you a fee set out in a written quote you accept before they suggest a loan or help you apply. They cannot ask for payment before providing their services.
Is it better to use a mortgage broker or go to a bank?
It depends on what you need. A broker compares loans from the lenders they work with and must act in your best interests. Going to a lender directly means choosing from its own loans. Either way, the lender makes the credit decision and may charge its own fees.
Is there any downside to using a mortgage broker?
There can be. A broker can only offer loans from the lenders they work with, so ask which lenders they cannot access. Lenders generally pay the broker a commission. The broker must still act in your best interests, so ask how their pay differs between lenders.
Do I have to repay a clawback if I refinance early?
No. A lender can claw back commission from the broker if the loan ends within up to two years. Under the rules in force since 1 January 2021, that amount cannot be passed on to you.
Does disclosing the commission satisfy the best interests duty?
No. ASIC says a broker cannot meet the conflict priority rule merely by disclosing a conflict or having you consent to it. The broker must still give your interests priority.
Talk to Zafar
Call Zafar, request a call back or send a message. Zafar works with clients across Australia by phone and video, and meets clients in person in Melbourne.