Mortgage Brokers Commission – talking about the “C” Word

Commission. That word can often make the most hardened consumer cringe. No matter the industry, negative connotations are almost always associated when we hear this word, with the mortgage broking industry being no exception.

It often rears its ugly head when media outlets need a headline on a slow news day.

Often “commentators” plant the seed that brokers, driven by the all mighty dollar will only set a loan with the lender paying the biggest bounty.

Not to mention the outrageous “kickbacks” brokers receive for referring clients.

At best most brokers will just roll their eyes until they can see their brain when they hear this nonsense, at worst it can be infuriating to see your industry admonished on the basis of a set of gross untruths.

How does commission really work?

When a broker lodges an application with a lender which subsequently settles, they receive a “referral fee” or commission.

This is made up of two parts – the “Upfront”, which is the commission for lodging, processing and settling a loan and “Trail” which is an ongoing payment coming from the percentage of the monthly repayment.

Upfront commission rates vary from lender to lender, with the spectrum ranging from 0.55% to 0.77% of the value of the settled loan amount.

So why wouldn’t a broker set the loan with the lender offering the higher rate?

It is not that cut and dry.

For example, the lender currently paying 0.77% does not pay trail commission for the first year, really balancing out that initial marginal increased upfront rate.

But the reality is, the bottom line more often than not comes down to bank policy.

All lenders were not created equal

In the instance of the example above, this particular lender will not accept certain applications relating to off-the-plan apartments and have restrictions regarding investment lending.

So for those customers looking for a lender in that space this bank can be eliminated right out of the gate. And this is just one random example.

All clients’ scenarios are unique and will very often dictate the lender chosen.

And of course there’s the rate.

Clients always want the most competitive rate, end of story.

After eliminating the lenders whose policies are not in line with the client requirements, the next step is seeing who has the best deal out of the lenders who are viable alternatives.

And here’s an outrageous concept – after weighing up options presented, it’s the client who makes the decision.

Why do brokers get ongoing commission?

Most successful brokers will not only be available to assist clients with any issues or questions they may have after settlement, but should remain in contact and check in with their clients at various times through the life of the loan to ensure its still working well for them.

Your broker may send you email newsletters, industry updates and generally touch base – and they will take the time to remain available and on call when you need them.

Surely this is a much preferred option than waiting on hold to speak to an offshore call centre should you have chosen to go to the bank direct.

Why use a broker?

Using the service of the majority of mortgage brokers is free to the client.

The commission is paid directly from the bank for a service that is tailored to the client requirement, from a service provider who is highly trained and knowledgeable and governed by the strictest of regulations.

The irony is that the clients who want to “beat the system” and go the bank direct are selling themselves short by not availing themselves to this cost effective and stress alleviating service.