ON THE BLOG

How Mortgage Broker Commissions Work in Australia: A Transparent Guide

One of the first questions people ask when working with a mortgage broker is: “Who pays you, and how much?” It’s a fair question — and one we’re happy to answer in full. Transparency about broker commissions is not only good practice, it’s a legal requirement under Australia’s Best Interests Duty framework.

The Short Answer: The Lender Pays, Not You

Mortgage brokers in Australia are paid by lenders, not by borrowers. When your loan settles, the lender pays the broker a commission from their own margin. You don’t pay this commission directly — it doesn’t appear as a fee on your loan documents, and it doesn’t increase your interest rate or loan balance. The cost to you is the same whether you go directly to that lender or through a broker.

Lenders price their distribution costs into their overall margin. If you go directly to a bank, the bank retains the margin it would otherwise pay a broker. Often, a broker can negotiate a better rate than you’d receive direct, because of volume and established lender relationships. You can learn more about how we work on our about us page.

Upfront Commission

Upfront commission is paid by the lender when your loan settles. It’s calculated as a percentage of the net loan amount funded. Typical upfront commissions in Australia are in the range of 0.55% to 0.70% of the loan amount, before aggregator splits and GST.

On a $600,000 loan at 0.65%, the upfront commission is approximately $3,900 before GST. On a $1,000,000 loan, the same rate equals $6,500. These amounts flow from lender to aggregator, who then distributes to the broker after deducting their own margin — a separate arrangement that doesn’t affect your costs.

Trail Commission

Trail commission is an ongoing payment the lender makes to the broker for the life of your loan. It’s calculated on the outstanding loan balance, typically paid monthly or quarterly. Standard trail rates are in the range of 0.15% to 0.20% per annum.

On a $500,000 loan balance, a trail of 0.175% per annum equals approximately $875 per year. Trail reduces as your balance reduces through principal repayments and stops entirely if you repay or refinance your loan.

Trail creates an incentive for brokers to maintain ongoing relationships — reviewing your rate, alerting you to refinancing opportunities, and ensuring your loan remains competitive. Under Best Interests Duty, this is a genuine obligation, not just good service. Our FAQ page addresses common questions about ongoing service.

Lender Panel and CIF Disclosure Requirements

Under the Combined Industry Forum (CIF) framework, brokers are required to disclose the lenders on their panel. This confirms that your broker’s recommendation comes from a genuine comparison across available options — not a limited selection driven by a preferred lender relationship.

At Lagos Financial, our aggregator provides access to a broad lender panel including major banks, second-tier banks, credit unions, and non-bank lenders. We also maintain a gifts and hospitality register, as required by industry standards. Benefits received from lenders to the value of $100 or more are recorded over a rolling 12-month period and available on request — you can ask for this register at any time to confirm that no lender relationship unduly influences our recommendations. Learn more about our mortgage broker service or review our home loan options.

Clawback Explained

Clawback is a key element of the commission structure. If you repay or refinance your loan within a specified period after settlement, the lender reclaims all or part of the upfront commission they paid the broker. Typical arrangements:

Loan repaid or refinanced within 12 months: 100% of upfront commission clawed back
Loan repaid or refinanced between 12 and 24 months: 50% clawed back
After 24 months: no clawback

This matters because a broker acting in their own financial interest might discourage refinancing within the clawback window — even if refinancing was genuinely better for you. Best Interests Duty directly addresses this: brokers must prioritise your interests even where doing so results in a commission clawback. If refinancing makes sense for you, your broker must say so.

Tiered Servicing Arrangements

Some lenders offer brokers access to tiered service programs — priority processing, dedicated contacts, faster turnaround — based on loan volumes placed. These provide service benefits, not additional commissions or client discounts. Under CIF requirements, these arrangements must be disclosed. They can genuinely benefit clients through faster applications, but your broker’s recommendations must never be driven by a desire to access preferred servicing at the expense of finding you the right loan.

Frequently Asked Questions

Can I ask my broker exactly how much commission they’ll earn?

Yes, and they’re legally required to tell you. Estimated commissions are disclosed in the Credit Proposal Disclosure document provided before you proceed. Ask at any point — transparency is both a legal requirement and standard practice at Lagos Financial.

Do brokers earn more from some lenders than others?

Commission rates vary slightly between lenders but are broadly similar across the industry. Under Best Interests Duty, a broker cannot recommend a lender primarily because they pay higher commission — the recommendation must be based on what suits your needs. Volume-based arrangements must also be disclosed.

What happens to trail commission if I refinance?

Trail from the original lender stops when you refinance. A new upfront commission is paid by the new lender, subject to clawback rules. Your broker should proactively review whether refinancing makes sense — under BID, they’re obligated to raise it even if it means forgoing ongoing trail income.

Do brokers charge fees on top of commission?

Most mortgage brokers do not charge direct fees to borrowers for standard residential applications — commission is their primary remuneration. If a fee applies (typically for complex or commercial transactions), it must be disclosed upfront in a Credit Quote. Lagos Financial does not charge fees for standard residential loan applications.

Full Transparency, Every Time

You should fully understand how your broker is paid before you commit to working with them. At Lagos Financial, commission disclosure is part of every client engagement — not something you have to ask for. Book a complimentary assessment and experience the difference of working with a broker built on transparency.