Alright, let's dive into the riveting world of mortgage broker payments in Australia, shall we?
The only reason I have written this, is that there has been a lot of strange, and frankly incorrect information being circulated. Particularly on Australian morning shows with less than savvy content, but undoubtedly perfect hair.
To set the scene for you, mortgage brokers are like financial matchmakers, helping you find your perfect home loan partner. Now, how do they get paid for their matchmaking skills?
In Australia, mortgage brokers are usually paid by the lenders themselves. That's right, the lenders foot the bill.
When a borrower successfully gets a home loan through a broker's recommendation, the lender gives the broker a commission. It's like a little thank-you gift for bringing them business.
But don't worry, this payment of commissions doesn't directly impact you, the borrower. Mortgage brokers have a legal obligation to disclose their commissions, ensuring transparency and fair play. So, you can rest easy knowing that your broker is working for you, even if they receive a commission from the lender.
Some brokers will charge a fee, if the situation you are in is highly complex and requires hours of additional work. But this is clearly communicated form the beginning via a credit quote.
Brokers have access to the same rates as going direct to bank, so you most certainly do not pay more long term with a broker. I'd argue you pay less, as you have someone in your corner, keeping the banks honest.
Every month I send at least a few of my customers the following:
"Great news - we noticed your current lender is offering cheaper rates to new customers, we have renegotiated your rates to match this offer. There are also a few options in the market that could shave off a few extra % points - if you'd like us to review the market please let me know"
Think of it as a win-win situation. Brokers get paid for their hard work, and you get expert advice and guidance without opening your wallet directly. It's like having a financial Aragorn on your side, guiding you through the landscape that is interest rates.
However, there is a down-side of this win-win situation, for the broker. If you pay off your mortgage or refinance too soon(within 2 years), the broker may have to give back some of that commission. I call it "yoink" policy. This happens because the broker's income is tied to the longevity of your loan. This has no affect on the mortgage holder, it is something that brokers need to cop on the chin. It shouldn't affect your decision making, other than deciding whether to refinance. Brokers get commissions clawed back if the loan is discharged within 2 years, even if no one is at fault, even if you:
- Sell the property
- Refinance to another lender
- Pay-off your loan in full
As a mortgage holder, the right thing to do is talk to your broker if you are planning to do any of the above. I'm sure they'll appreciate the heads up!