Key takeaways
- Lenders pay brokers an upfront commission at settlement and usually a smaller ongoing trail.
- Both are calculated on the loan amount, and are typically net of any offset balance.
- Lenders can claw back commission if a loan is repaid within the first couple of years.
- Brokers must act in your best interests and disclose commission before you commit.
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Upfront commission
When your loan settles, the lender pays the broker a one-off commission calculated as a percentage of the loan amount. Many lenders calculate it on the amount drawn, less any offset balance. The rate is broadly similar across the major lenders.
Trail commission
Most lenders also pay a smaller ongoing commission, known as trail, while the loan stays open. It's calculated on the outstanding balance, so it falls as you pay the loan down. Trail is intended to fund the ongoing service a broker provides after settlement, such as rate reviews, variations and help when your circumstances change.
Clawback
If a loan is repaid or refinanced within the first one to two years, many lenders claw back some or all of the upfront commission from the broker. That's why some brokers charge a fee in that situation. Ask about it before you start.
What's disclosed to you?
Before you commit, your broker must give you a credit guide and a credit proposal disclosure setting out the lender, the loan and the commission they expect to receive. You're entitled to ask for an explanation of any figure.
The best interests duty
Since 1 January 2021, mortgage brokers have been legally required to act in the best interests of consumers and to prioritise the consumer's interests when there's a conflict. In practice, that means the broker needs to be able to explain why the recommended loan suits your objectives and circumstances, and record how they reached that view.
Why most brokers don't charge you
Because lenders pay commission, most brokers don't charge borrowers for home loans. Lenders fund commission from the cost of acquiring customers, rather than by charging broker customers a higher rate. See how much a mortgage broker costs.
How LendQuest is paid
In almost every case our service costs you nothing. The lender pays us once your loan settles, and we show you exactly what that is in writing before you commit. If a situation ever involved a fee, you'd know the exact number before we did anything.
Ask us anything about how we work
Book a free game plan call. We'll explain our panel, our process and our commission before you decide anything.
Book your free game plan callGeorge Karpathakis, Co-Founder & DirectorYour enquiry comes straight to our team. We usually reply within one business day.
Frequently asked questions
Does trail commission cost me anything?
No. It's paid by the lender and doesn't change your rate or repayments.
What is a clawback fee?
A fee some brokers charge if a lender claws back their commission because the loan was repaid early. It should be disclosed upfront.
When did the best interests duty start?
1 January 2021.
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This guide is general information only and does not take your personal circumstances into account. It is not financial, credit, tax or legal advice. Examples are illustrative only. Government schemes, lender policies and rates change over time and eligibility criteria apply. Speak with us for advice tailored to your situation. LendQuest Pty Ltd is a credit representative (555514) of BLSSA Pty Ltd, Australian Credit Licence 391237.