Commission

Commission is paid by the lender to a mortgage broker for introduction of a new client with way of a home loan. Commission is paid in 2 ways:

Upfront: is a one-off payment paid by the lender to the broker after the loan settles. It is typically calculated as a percentage of the loan amount. Each lender calculates the upfront commission differently.

Trail:  is an on-going payment made by the lender to the broker for the duration of the loan. These payments will cease if the loan is paid off in full, is refinanced to another lender or if there are a level of arrears. The payments are calculated on the outstanding loan balance and each lender pays a slightly different percentage than another.

If for some reason the client decides to change lenders or pay out the loan in the first 1-2 years, the lender will take a ‘claw back’, which is to recover a portion of the commission they have paid to the mortgage broker, which is meant to offset the lenders costs. Each lender calculates this differently, some may take a larger portion in the first year and then decrease in the second year.

Your mortgage broker should provide clear and upfront information to borrowers about their commission arrangements.