In short: In Australia the lender pays the mortgage broker, not you. The broker receives an upfront commission (typically around 0.5–0.7% of the loan amount) and a trail commission (typically around 0.15–0.20% a year of the balance still owing). You get the same rate as walking into the branch, and often better, because commission is part of the lender's normal distribution cost.
People are rightly suspicious of anything described as free. This guide sets out exactly how the money flows when you use a mortgage broker: who pays, how much, when it can be taken back, where it is disclosed, and the legal duty that sits on top of it all.
The two commissions
Almost every residential home loan arranged by a broker in Australia generates two payments from the lender.
Upfront commission
The upfront commission is paid once, shortly after your loan settles, as a percentage of the loan amount, typically around 0.5–0.7% depending on the lender. Since the Combined Industry Forum reforms, most lenders pay it on the amount actually drawn down, net of money sitting in offset, rather than on the approved limit, so brokers have no incentive to recommend a bigger loan than you need.
Trail commission
Trail is a smaller ongoing payment, typically around 0.15–0.20% a year of your outstanding loan balance, paid monthly for as long as the loan stays with that lender, and it falls as you pay the loan down. It pays the broker for looking after you over the life of the loan: rate reviews, repricing requests, variations, and being the person you call when something changes. A broker only keeps earning it if you stay happy and stay put.
What it looks like on a $600,000 loan
Here are the dollars on a typical $600,000 owner-occupier loan over 30 years, using 0.65% upfront and 0.15% trail for illustration, at 6.00% p.a.
| Broker | Bank branch lender | |
|---|---|---|
| Upfront payment at settlement | 0.65% × $600,000 = $3,900 | Nil per loan; paid a salary |
| Trail, year 1 (average balance about $596,000) | About $890 | Nil per loan; may earn bonus or incentives tied to targets |
| Trail, year 5 (balance about $558,000) | About $840 | Same |
| Trail, year 10 (balance about $502,000) | About $750 | Same |
| Who pays it | The lender | The lender |
| Cost added to your rate or fees | None. Same product, same rate, same fees as going direct | None |
| Legal duty to act in your best interests | Yes, Best Interests Duty | No. Must be "not unsuitable" only |
| Can compare other lenders' products | Yes, across a panel | No, own products only |
The broker's total income on this loan over ten years is roughly $12,000, most of it spread across the years rather than paid at once. The bank's branch lender is not free either; their salary, office and marketing sit in the same product margin. Lenders treat broker commission as a substitute for those costs, not an addition, which is why the rate you get through a broker is the same as, or better than, the rate on the bank's own website.
Where the money goes: aggregators
Most brokers do not receive commission directly from lenders. They operate under an aggregator, a licensed group that holds the lender agreements, provides software and compliance, and collects the commission. The aggregator keeps a share and passes the rest on, so of the $3,900 upfront above the broker's business may see about 75% to 95%. The aggregator's panel also determines which lenders your broker can place you with; our lenders page lists the kinds of lenders we work with.
Clawback and why brokers want loans that last
Clawback is the part of broker remuneration most borrowers have never heard of. If your loan is paid out or refinanced within a set period after settlement, typically around two years, the lender takes back some or all of the upfront commission from the broker. A common structure is 100% clawback in the first 12 months, tapering to 50% in the second year, then nil.
The practical effect is that a broker has every incentive to recommend a loan you will keep. Put you into a product with a nasty rate after the honeymoon period, and when you refinance out at month 14 they lose most of what they earned.
Clawback is also why some brokers charge a fee in some cases. If a borrower clearly intends to refinance again within a year, or is taking a small or short-term loan where the upfront is tiny, the broker may ask for a fee to cover the risk. GNT Finance's position is simple: there is no cost to you for our home-loan service in most cases, and if a fee would ever apply we tell you in writing before you commit to anything.
Where commission is disclosed
Commission arrangements are not a secret. The law requires disclosure at several points, in documents you must be given.
| Document | When you get it | What it tells you about remuneration |
|---|---|---|
| Credit Guide | At or before the first substantive discussion about a loan | The broker's licensee and aggregator, the commission ranges they typically receive, their top six lenders by volume, and how to complain |
| Credit proposal disclosure | Before you sign the loan application | The estimated upfront and trail commission for the specific loan recommended, and any fee payable by you |
| Quote or fee agreement | Only if the broker charges you a fee | The exact fee, when it is payable and whether it is refundable |
You can read our own credit guide at any time. If a broker will not provide one before the application is lodged, walk away.
Best Interests Duty and the Royal Commission reforms
The commission model came under heavy scrutiny in the 2019 Financial Services Royal Commission, whose final report questioned whether lender-paid commission could ever be compatible with acting for the customer. The answer, legislated and in force since 1 January 2021, was a package of reforms.
- Best Interests Duty. Brokers must act in your best interests when arranging a loan, and where their interests (including commission) conflict with yours, put yours first. Bank staff selling their own products do not owe you this duty; they only have to ensure a loan is "not unsuitable". Our Best Interests Duty page explains what this means in practice.
- Ban on conflicted remuneration. Volume-based bonuses, campaign incentives and other payments that could push a broker towards a particular lender are prohibited.
- Ban on soft-dollar benefits. Lender-funded conferences, hospitality above a small threshold and similar perks are gone.
- Upfront on net drawn amount. Commission is calculated on what you actually use, not what you were approved for.
- Clawback rules. Lenders may claw back from the broker, but under the industry code brokers cannot pass clawback on to you.
All of this sits under the National Consumer Credit Protection Act, which also governs responsible lending and requires brokers to hold or operate under an Australian Credit Licence.
When a broker might charge a fee
Commission-only is the norm for standard residential lending. In some situations a fee is reasonable, and a good broker will say so upfront.
- Complex commercial or SMSF lending, where the work is extensive and lender commission is lower or absent. See our SMSF loans page.
- Very small loans, where 0.65% of, say, $80,000 does not cover the cost of the work.
- Some private or specialist lending, where the funder pays little or no commission.
- Loans the borrower intends to repay quickly, such as bridging finance, because of clawback.
Whatever the case, the rule at GNT Finance is the same: we will always tell you in writing before you commit.
Other loan types
Home loans are the bulk of what brokers do, but the remuneration differs elsewhere.
- Personal loans and car loans often pay a flat fee or a smaller upfront percentage, sometimes with no trail. Ask how the broker is paid on any car loan or personal loan.
- Commercial property loans commonly pay a lower upfront (around 0.3–0.5%) and may have no trail, which is why a broker fee is more usual.
- Construction loans pay upfront as each progress payment is drawn, so the broker's income arrives over the build.
The regulator's consumer site, moneysmart.gov.au, has a plain-English rundown on using a broker.
Questions to ask a broker
Use this checklist at your first meeting.
- Can I have your Credit Guide now, before we discuss loans?
- Which aggregator are you with, and how many lenders can you access?
- What upfront and trail commission will you receive on the loan you recommend?
- Will I pay you any fee, in any circumstance, and will you confirm that in writing?
- Do you receive different commission from different lenders, and how do you manage that conflict?
- How often will you review my rate after settlement?
- Who do I contact if I have a complaint, and are you a member of AFCA?
Our how it works page walks through the process from first call to settlement, and about GNT Finance explains who you will be dealing with.
Common misconceptions
- "The broker's commission is added to my rate." No. The rate and fees are the lender's standard pricing, identical whether you apply direct or through a broker, and the broker often negotiates a discount below the advertised rate.
- "Brokers push the lender that pays the most." Commission rates across mainstream lenders sit in a narrow band, volume bonuses are banned, and Best Interests Duty makes recommending a worse loan for higher commission unlawful.
- "Going direct gets me a better deal because the bank saves the commission." Banks pay their own staff and marketing instead. Their retail pricing is set to compete with broker channels, not undercut them.
- "Trail means the broker gets paid for doing nothing." Trail funds the ongoing relationship. If your broker never contacts you after settlement, find one who will.
- "If I complain about my broker, nothing happens." Brokers must belong to AFCA, an independent dispute scheme with binding outcomes. Our complaints page explains the steps.
Frequently asked questions
Do you pay a mortgage broker?
For a standard home loan, usually not. The lender pays the broker an upfront and a trail commission from its own distribution budget, so the service is at no direct cost to you. Some brokers charge a fee for complex commercial, SMSF, very small or short-term loans, and they must disclose it in writing before you proceed. Always ask the question directly and check the Credit Guide and credit proposal disclosure.
How much commission does a mortgage broker get?
On a residential home loan, typically around 0.5–0.7% of the loan amount upfront and around 0.15–0.20% a year in trail on the outstanding balance. On a $600,000 loan that is about $3,900 upfront and about $890 in the first year of trail, before the aggregator's share. Exact rates vary by lender and are shown to you in the credit proposal disclosure before you sign.
Is it cheaper to go direct to the bank?
Generally no. A bank's advertised rates and fees are the same whether you apply through a branch or a broker, and brokers often obtain pricing discounts below the advertised rate. The bank pays its own staff instead of commission, so nothing is saved by cutting the broker out. What you lose by going direct is the comparison across other lenders and the Best Interests Duty that a broker owes you and a bank employee does not.
Does the broker's commission affect my interest rate?
No. Commission is paid by the lender out of its margin and is not added to your rate, your fees or your loan balance. Lenders treat it as the cost of acquiring a customer, the same way they treat branch salaries and advertising. Best Interests Duty also prohibits a broker from recommending a loan with a higher rate because it pays more commission. If two loans are equally suitable, the broker must still put you first.
What is trail commission?
Trail commission is a small ongoing payment, typically around 0.15–0.20% a year of your outstanding loan balance, that the lender pays your broker each month for as long as the loan remains in place. It pays for ongoing service such as rate reviews and loan variations, and it falls as you pay the loan down. If you refinance to another lender, trail on the old loan stops and any new broker starts receiving trail from the new lender.
What is a clawback?
A clawback is the lender taking back some or all of the upfront commission from the broker if your loan is repaid or refinanced within a set period, typically around two years. It usually starts at 100% in the first year and tapers in the second. Clawback is a cost to the broker, not you, and industry rules prevent brokers passing it on. It is the main reason brokers want to recommend a loan you will keep.
Talk to GNT Finance
Gorakh Timilsina started as a broker assistant, spent years as a senior credit officer inside lending, then became a senior mortgage consultant and founded GNT Finance, so he has seen the commission model from every side of the desk. From our Mickleham mortgage broker base to the wider Melbourne mortgage broker service, our home loans come with full written disclosure of how we are paid. Book a free consultation or call 0426 403 703.
This page is general information only and not legal, tax or financial advice. Laws change — confirm current rules with the State Revenue Office, the ATO or a licensed professional.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.