It’s a fair question to ask: if a broker’s help costs me nothing upfront, how do they get paid? Understanding the answer helps you feel confident about the advice you receive and know what to ask.
This guide explains how brokers are generally paid in Australia, the documents you should receive, and the rules that protect you.
How brokers are generally paid
Most mortgage and finance brokers are paid by the lender, not the borrower. When a loan settles, the lender pays the broker a commission. For home loans, Moneysmart explains that this commission is usually a percentage of the loan amount, made up of two parts.
- Upfront commission. A one-off payment made after the loan settles, calculated on the amount borrowed.
- Trail commission. Smaller ongoing payments, made for as long as the loan stays with that lender, usually calculated on the balance still owing.
Trail commission is one reason a good broker stays interested in your loan after settlement. It supports ongoing service, such as checking in on your rate and helping when your circumstances change.
Some lenders can also ask a broker to pay back part of the upfront commission if a loan is paid out or refinanced in the early years. This is called a clawback. It’s generally a cost to the broker. If a broker would ever pass a cost like this on to you, it should be disclosed and agreed upfront.
Commission arrangements for car and equipment finance can work differently to home loans. Whatever the product, your broker should explain how they’re paid for your loan.
When a broker charges a fee
Some brokers also charge the borrower a fee, for example for a complex application or a type of lending where lenders don’t pay a commission. That’s allowed, but there are rules.
Under the National Credit Act, a broker who charges a consumer a fee must give you a credit quote before providing credit assistance. The quote sets out the services it covers and the maximum amount you’re expected to pay. You need to sign and date the quote to accept it, and the broker must give you a copy. A broker can’t ask you to pay a fee before providing their services.
If a broker doesn’t charge fees, they’ll usually say so in their Credit Guide.
Your Credit Guide
Early in the process, generally before any credit assistance, your broker should give you a Credit Guide. It’s a short document that tells you who you’re dealing with and how they work. ASIC requires it to include:
- the broker’s name and contact details
- their Australian credit licence number, or their credit representative number and the licensee they work under
- the fees and charges you may need to pay
- how commissions from lenders may be paid to the broker
- the six lenders the broker’s licensee does the most business with
- how to make a complaint, both to the broker and to the Australian Financial Complaints Authority (AFCA)
Moneysmart also suggests checking that your broker is licensed, or is a representative of a licensee, using ASIC’s Professional Registers Search.
The best interests duty
From 1 January 2021, mortgage brokers have been required to act in the best interests of consumers when providing credit assistance. They must also put the consumer’s interests first where there’s a conflict, including over how the broker is paid.
In practice, this means a mortgage broker needs to:
- understand your goals, needs and financial situation
- consider which loans are suitable and why one is recommended over others
- be able to explain why a recommendation is in your best interests, not just that it’s affordable
- keep records of how they reached that recommendation
The best interests duty applies to home loans for personal use and for residential investment property. Business lending, such as equipment finance or commercial property, sits under different rules. Responsible lending obligations also apply to consumer credit, and require that a loan is not unsuitable for you.
A note from Jenny Please ask me anything about how I’m paid, at any stage. I would much rather you feel completely comfortable with the reasons behind a recommendation than wonder about them later.
Questions you can ask any broker
Moneysmart suggests some useful questions. You don’t need to be an expert to ask them, and a good broker will be happy to answer.
- Which lenders do you work with, and are there any you can’t access?
- How are you paid for this loan, and does that differ between lenders?
- Why are you recommending this loan, and why is it in my best interests?
- What fees will I pay, and what features come with the loan?
- Can you show me other options, including lower cost ones?
What this means for you
Whether you go to a lender directly or through a broker, the lender still assesses and approves your loan. The commission is paid from the lender’s side, and the loan documents set out your interest rate, fees and terms.
What a broker adds is time, comparison and guidance through the process. Knowing how that service is paid for, and the protections around it, means you can focus on finding a loan that suits you.
If something doesn’t feel right, you can raise it with your broker first. If it isn’t resolved, AFCA offers free, independent dispute resolution for consumers.
The information in this guide is general in nature and doesn’t take your circumstances into account.
This information is general in nature and does not take into account your objectives, financial situation or needs. Lending criteria, terms, fees and charges apply and vary between lenders. Speak with us for advice about your circumstances.
