Are you searching for a home loan?
Many people now recommend getting your loan through a mortgage broker. Mortgage brokers are small ventures that help you in accessing home loans and financial information about home loans.
These institutions liaise with various lenders, and hence they have insightful information about the latest mortgages and interest rates on offer. A mortgage broker helps you to pick the best loan for your needs and financial status.
However, you might be wondering the following:
- How much do they cost?
- Does using a mortgage broker add extra costs on my mortgage?
Here, we offer detailed information about mortgage broker costs and answer any questions you may have.
How Much Will You Pay A Mortgage Broker?
Typically, mortgage brokers in Australia do not charge a fee, but this situation could change soon. However, there are a few brokers that are now requesting a small fee based on other services, so, you must do your research to get the right deal for you.
With a large number of mortgage brokers like Bris Loans not charging a fee for brokerage services, it would be irresponsible to incur unnecessary costs.
Does this mean that mortgage brokers offer free services and go home empty-handed? Like you and me, brokers must pay their bills, so, no, they don’t go back empty-handed.
Here are some of the ways that brokerage services generate income:
Commissions from Lenders
You’d be wrong to think that mortgage brokers work for free. Brokers receive commissions from lenders for each borrower they sign up, as a thank you for their referral. Their primary role is to help link you with a reputable bank or lender and ensure that you secure a home loan that right for you.
Typically, a mortgage broker gets two types of commissions
- Upfront commissions
- Trail or Ongoing commissions
The broker receives an upfront commission after closing the deal. The commission depends on the size of the loan you borrow and ranges between 0.3% – 0.7%. Also, the rate varies with different lenders. So, the higher the amount of a home loan a borrower takes, the more the commission the mortgage broker earns.
Next, a broker earns a trial commission. Your broker receives a monthly commission based on the remaining loan amount per year. The commission is usually less than 0.4%. Notably, your broker will continue receiving this commission for as long as you keep servicing your loan. For the broker to continue earning the commissions, you must stick with the lender and finance your mortgage up to the last instalment.
In case you decide to refinance or cancel your loan, the broker has to refund the upfront commission to the lender. The refund to the bank is known as a clawback fee. And in return, you’ll have to repay the same amount to your mortgage broker.
Bonus Commissions from Lenders
Like other sales businesses, banks offer a bonus commission to mortgage brokers. Brokers earn a bonus depending on the quality of applications submitted or quality submissions made.
In particular, bonus commissions which are in the form of additional upfront commissions are standard where brokers work under an aggregator or head mortgage broker. The number of bonuses depends on broker submission quality and conversion rates.
Though it is not common, some mortgage brokers charge a consultancy fee to borrowers.
Such brokers may or may not receive a commission from the lender. However, you do not have to pay any charges when you can access free mortgage brokerage services from brokerages like Bris Loans.
Is There a Possibility for a Conflict of Interest?
Since mortgage brokers received a commission from lenders, some unscrupulous ones recommended loans that offered high commission rates.
For instance, a broker might have driven more customers to a bank, offering them a 0.7% commission over one with 0.4% commission rate. This aspect could have increased your loan costs without your knowledge.
Fortunately, this is no longer possible.
The government enacted the National Consumer Credit Protection Act 2009 (NCCP Act) to protect you and other borrowers from such issues eliminating any conflict of interest. The law restricts mortgage brokers from recommending a loan that is unsuitable to the borrowers based on their financial situation.
So, there’s no need to worry as long as your mortgage broker holds the Australian Credit License (ACL).
As you can see, seeking a mortgage brokerage services is smooth and well worth your while. You do not need to pay anything for the service, and you’ll get access to pertinent financial information and lenders with the best rates, which you may not have managed to access on your own.
Also, mortgage brokers help you to submit your home loan application to the lender, reducing the chances of rejection.
If you’re having challenges getting a qualified mortgage broker, do not hesitate to get in touch with our friendly team at Bris Loans. Talk to us to help you secure favourable terms on your next home loan.