Key Takeaways
• Mortgage brokers are usually paid by the lender, not by you. They earn an upfront commission when your loan settles and a smaller trail commission over the life of the loan.
• Commission is calculated on the loan amount, not on your interest rate, so a broker does not earn more by putting you in a higher-rate loan.
• Commission rates are now broadly similar across lenders, and a legal best interests duty means a broker must recommend what suits you, not what pays them more.
• Brokers have to disclose what they are paid. If you are ever unsure, you can simply ask, and a good broker will explain it openly.
It is one of the most common questions we hear, and a fair one: if a broker is paid by the lender, can you really trust their advice? Nobody wants to be quietly steered into a more expensive loan just so someone earns a bigger pay cheque. So let's clear the air and explain exactly how mortgage brokers get paid, and whether that pay works against you.
The short version is that the way brokers are paid is now tightly regulated, and the incentives are not what many people assume. Once you understand how it works, the trust question gets a lot easier to answer. We will break it down in plain English, with no jargon, so you can feel confident about who is in your corner.
If you would like to see this in the context of your own loan, you can meet the team at Loan Street and ask us exactly how we are paid before you commit to anything. We would rather you understood it upfront than wondered about it later.
How Brokers Actually Get Paid
Most brokers earn their income through commissions paid by the lender, in two parts. Neither part is added to your loan or charged to you directly. Here is how each one works.
Upfront Commission
The main payment is an upfront commission from the lender upon settlement of your loan. It is a percentage of the amount you actually draw down, typically around 0.65% to 0.70% plus GST. On a $500,000 loan, that is roughly $3,250 to $3,500, paid by the lender.
Trail Commission
On top of that, the lender pays a smaller ongoing trail commission for as long as your loan remains active, usually about 0.15% to 0.20% of your remaining balance per year. On a $500,000 balance, that is around $750 to $1,000 in the first year, and it decreases as you pay down the loan.
Who Pays the Bill
In almost every case, that bill is the lender's, not yours. Most brokers, around 85%, charge borrowers nothing at all. A small number of lenders charge a fee for complex or unusually small loans, and where they do, they have to set it out in writing first, so you are never caught out.
Why the Commission Does Not Reward a Pricier Loan
This is the heart of the worry, so it is worth being precise. The fear is that a broker earns more by putting you in a more expensive loan. Look at how the numbers actually work, and that fear loses most of its bite.
Commission That Tracks the Loan Size, Not the Rate
Commission is a percentage of the loan amount, not your interest rate. A broker does not earn an extra cent by placing you in a loan with a higher rate. A 6% loan and a 5.5% loan of the same size pay the broker the same amount, so there is no built-in reward for finding you a cheaper rate.
Rates That Are Broadly Standard Across Lenders
Commission percentages are now largely similar across lenders. That means a broker has little financial reason to favour one lender over another on the basis of pay. The decision comes back to which loan actually fits you.
The One Real Incentive, and Its Limits
If there is any incentive in the structure, it points to a larger loan, since a larger loan means a larger commission. That is worth naming honestly. Two things keep it in check, though: responsible lending laws stop lenders from approving loans you cannot comfortably afford, and the best interests duty requires your broker to recommend what genuinely suits you, not simply what is biggest.
The Rules That Keep Brokers Honest
You do not have to take any of this on faith. Since the Banking Royal Commission, the way brokers are paid has been reformed and tightened. Here are the protections that sit behind the advice you get.
The Best Interests Duty
Since 1 January 2021, brokers have been legally bound by a best interests duty under the National Consumer Credit Protection Act. In plain terms, a broker must put your interests ahead of their own pay. They cannot recommend a loan because it earns them more when it is not the right loan for you.
Bans on Conflicted Commissions
The reforms also banned the kinds of payments most likely to skew advice, such as volume-based and campaign bonuses that rewarded brokers for funnelling business to a particular lender. Soft-dollar perks are capped as well. The result is a pay structure with the obvious conflicts stripped out.
Full Disclosure of Pay
Brokers also have to tell you what they will be paid. You should see the commissions a broker may receive set out in writing before you proceed, so the numbers are never hidden. If you cannot find it, just ask.
What About Trail Commission and Refinancing?
One fair concern is left. If a broker keeps earning trail while your loan runs, do they have a reason to talk you out of switching? It is a sensible question, so here is the honest answer.
There is a theoretical pull there, because moving you to a new lender ends the trail. The best interests duty cuts the other way, though, and it is the stronger force: a broker is obliged to raise a better option with you even when it costs them that ongoing income. There is also a clawback to understand. If you repay or refinance within the first two years, the lender takes back some or all of the broker's upfront commission, and the rules prohibit a broker from passing that cost on to you. So while the structure is not perfectly free of tension, the law is built to keep your interests on top.
A Real-World Example: What a Broker Earns on Your Loan
To make it concrete, here is what the pay might look like on a typical loan, using rounded figures. Treat it as an illustration, since exact rates vary by lender.
Say you take out a $500,000 home loan. At an upfront commission of 0.65%, the lender pays the broker about $3,250 upon loan settlement. None of this is added to your loan or charged to you.
On track at 0.15% a year, the broker then earns roughly $750 in the first year, calculated on your balance. As you pay the loan down, that figure shrinks each year.
Now compare two loans the broker could place you in, both $500,000: one at 5.95% and one at 6.25%. The commission is the same for both because it is based on $500,000, not the rate. The broker has nothing to gain by steering you to the dearer one and a legal duty not to. That is the whole point.
Questions Worth Asking Your Broker
The simplest way to feel confident is to ask. A good broker welcomes these questions and answers them plainly.
• How are you paid, and does it differ between lenders? You are entitled to a clear answer.
• Why did you recommend this loan for me? The reason should be about your needs, not their pay.
• Which lenders can you access, and which can't you? This shows you how wide their view is.
• Will you let me know if a better option comes up later? Under their duty, they should.
If the answers are open and easy to follow, that is a good sign. If they are vague or evasive, that tells you something, too.
Where to Read More
If you want to see the rules for yourself, the Australian Securities and Investments Commission (ASIC) publishes its guidance on the mortgage broker best interests duty. It is written for the industry rather than for borrowers, so it is more technical than a consumer guide, but it sets out exactly what a broker is obliged to do, which is reassuring to see in black and white.
Frequently Asked Questions (FAQs)
Do I pay my mortgage broker anything?
In most cases, no. The lender pays your broker a commission for arranging the loan, so you usually pay nothing directly. If a broker does charge a fee for a complex or very small loan, they have to put it in writing before you proceed.
Does a broker earn more if I take a loan with a higher interest rate?
No. Commission is worked out on the size of your loan, not the interest rate. A loan at a higher rate and a loan at a lower rate of the same amount pay the broker exactly the same, so there is no reward for finding you a dearer rate.
Could a broker put me in a bigger loan than I need just to earn more?
It is the one place where a financial incentive exists, since a larger loan means a larger commission. Responsible lending laws and the best interests duty are designed to prevent exactly that, and a good broker will only recommend what you can comfortably afford and genuinely need.
What is clawback, and does it cost me anything?
Clawback is when the lender takes back some or all of the broker's upfront commission if you repay or refinance the loan within the first two years. It is an arrangement between the lender and the broker, and the rules prohibit a broker from passing that cost on to you.
Are brokers allowed to hide what they are paid?
No. Brokers are required to disclose the commissions they may receive, set out in writing, before you go ahead. If you have not seen it, you are well within your rights to ask for it.
Does the trial commission mean my broker will discourage me from refinancing?
It should not. Although moving lenders ends the trail, the best interests duty obliges your broker to raise a better option with you even when it reduces their own income. If your broker never reviews whether you could do better, that is worth questioning.
The Bottom Line
Mortgage brokers are paid by the lender, through an upfront commission and a smaller ongoing trail, both based on the size of your loan rather than your interest rate. Because the rate does not change their pay, and because commission percentages are now broadly similar across lenders, a broker has no built-in reason to push you toward a pricier loan. The best interests duty, the bans on conflicted commissions, and the requirement to disclose pay are all there to keep it that way.
That does not mean you should switch off your judgement. Ask how your broker is paid, ask why they recommended a particular loan, and expect clear answers. When the pay is transparent, and the advice is built around your needs, you can stop worrying about the commission and focus on getting the right loan. If you would like us to walk you through how we are paid, we are always happy to do exactly that.