Generally, a mortgage broker gets paid in two ways – an upfront fee and a trail fee. Across the board the payments from most lenders do not vary much so there should be no bias in the lenders that a broker chooses to discuss with you.
The upfront is paid by the lender for the introduction of your business. This fee replaces many of the costs a lender would have otherwise incurred in winning your business – staff wages, branches, advertising, electricity, telephones, superannuation – all those types of expenses.
The trail is paid each month based on the balance outstanding each month for the life of the loan. Many people ask why trail commissions exist and that is a fair question – the commission is paid to the broker so he or she can continue to provide you with assistance and support over the course of your loan. Simply speaking, if you have a problem with your loan, go back and talk to your broker and ask them to assist you, because they are being paid to look after you.
There is a perception that brokers eat caviar every day while sipping champagne and planning their holidays. In reality the average broker earns a gross income of around $150,000 per year. From that they pay their operating costs – rent, phone, electricity and so on. Then the taxman takes his share. Depending on the individual broker they would generally net $50,000 to $80,000 per year.
Like many things in life, there is no simple yes or no answer. If you apply for a home or personal loan, a broker cannot charge a fee until a service has been provided, so you cannot be charged a fee upfront. If you apply for a business loan, however, the broker can negotiate an upfront fee.
Some brokers charge a 'mandate' or 'commitment' fee. This fee gives the broker exclusive rights to seek a loan on your behalf for an agreed period. If the broker does not get your loan approved on the terms agreed in the mandate agreement, the fee should be refunded. If the loan is approved and you don't go ahead you lose the fee. If a mandate fee is charged and the loan is taken up, the mandate fee should be refunded as well.
There may be other fees applied in a limited range of circumstances, which should be explained prior to a service being provided. For an outline of the loan options available, email or phone David on 0418 785 747.
David Seymour is an Authorised Credit Rep No 477331 of Regional Finance Solutions Pty Ltd ABN 71163893945 Aust Credit License 484980.