Do Mortgage Brokers Favour Higher Commissions? How Pay Really Works

Most Australians have heard some version of this line:

“Brokers only recommend the loans that pay them the most.”

Here’s the direct answer: in Australia, mortgage brokers are mainly paid commissions by lenders, not by you, and there can be conflicts of interest. But since 2021, brokers must follow a legal Best Interests Duty that requires them to put your interests ahead of their own pay, with serious penalties if they don’t. Your job isn’t to trust blindly or to be cynical; it’s to understand how remuneration works so you can ask sharp questions and make a confident choice this week.

Understanding how money flows helps you assess broker incentives.

1. How mortgage brokers are paid in Australia – the basics

1.1 The two main types of broker commission

Most mortgage and finance brokers in Australia are paid by lenders via:

1. Upfront commission – a percentage of the loan amount when the loan settles.
2. Trail (ongoing) commission – a smaller percentage of the remaining loan balance, paid monthly.

Indicative, not exact, ranges (they vary by lender and aggregator):

• Upfront: often around 0.6%–0.7% of the settled loan amount (incl. GST), less an aggregator split.
• Trail: often around 0.1%–0.2% p.a. of the remaining balance, paid monthly.

So on a $800,000 home loan, the lender might pay an upfront commission in the ballpark of $4,800–$5,600 and a trail of maybe $800–$1,600 in year one (before business running costs and tax).

As explained in [/insights/are-mortgage-brokers-free-alexandria-borrowers-costs], this is why brokers can feel “free” to you – you usually don’t pay a separate advice fee. But the fact you’re not writing the cheque doesn’t mean you shouldn’t understand how the pay works.

1.2 Who actually sends the money to the broker?

The flow usually looks like this:

1. Lender pays commission to the aggregator (the broker’s platform/wholesaler).
2. Aggregator takes a cut.
3. Aggregator pays the remainder to the broker business.
4. If the broker is an employee or contractor, they may get a split again.

Each step takes a slice. That’s important because a lender that pays a slightly higher headline commission may not translate to a huge difference in the broker’s pocket after splits.

1.3 When a broker can charge you a fee

Most standard PAYG home buyers don’t pay a broker fee. But it’s legal and sometimes appropriate to charge you a direct fee when:

• The loan is complex or small (e.g. low loan amount but lots of work).
• It involves specialist or non‑conforming lenders that pay low or no commission.
• It’s commercial finance, SMSF lending or complex self‑employed where work is extensive.

If there’s a fee, a good broker will spell out:

• The exact dollar amount or hourly rate.
• What work is covered.
• When it’s payable (e.g. at lodgement or settlement).

You can see more detail on this in [/insights/are-mortgage-brokers-free-alexandria-borrowers-costs].

2. The Best Interests Duty: the rule that changed everything

2.1 What is the Best Interests Duty (in plain English)?

Since 1 January 2021, mortgage brokers have a legal Best Interests Duty (BID) under ASIC law.

In plain English, this means:

• A broker must prioritise your interests over their own, including over commission differences.
• They must be able to show why their recommendation is in your best interests, not just “not unsuitable”.
• They must document research and comparisons, not just push one lender.

If ASIC finds a broker has put their pay ahead of you, penalties can include licence conditions, bans and civil penalties.

2.2 What BID does and doesn’t cover

BID currently applies to:

• Consumer credit for residential property (home loans, most investment loans to individuals).

It does not always apply in the same way to:

• Some commercial or business lending.
• Certain loans to companies or trusts where the purpose is clearly business.

That doesn’t mean brokers can behave badly – they still face general conduct and responsible lending rules – but the formal Best Interests Duty test is strongest for consumer home lending.

If you run a business and are looking at equipment, fit‑out or commercial property finance, ask the broker what duty they owe you and how they manage conflicts.

2.3 What BID means for commissions in practice

Under BID, a broker cannot justify recommending one loan over another purely because it pays higher commission if:

• The other loan is clearly better for you (rate, fees, features, policy fit), and
• There’s no genuine reason (e.g. speed, valuation risk, credit policy) that makes the higher‑paying loan more suitable.

They must be able to show:

• What options were considered.
• Why one option was recommended over others.
• How they weighed price, features, structure and service.

If you ask, they should be comfortable talking through this with you.

3. Are mortgage brokers biased by commission? Where conflicts really sit

3.1 The main potential conflicts of interest

Real conflicts can exist. Common ones include:

1. Different commission levels between lenders – one lender might pay a few basis points more.
2. Clawbacks if you refinance or pay out the loan quickly.
3. Volume bonuses at aggregator or group level (less common and heavily scrutinised now).
4. Soft incentives – marketing support, training events, conferences.

None of these automatically mean you’ll get bad advice. But you’re smart to assume they exist and ask how they’re managed.

3.2 How big are commission differences really?

In most mainstream panels, commissions are broadly similar, but not identical. Differences might be, for example:

• Lender A: 0.65% upfront, 0.15% trail.
• Lender B: 0.60% upfront, 0.165% trail.

On a $700,000 loan, that might be a few hundred dollars difference upfront or per year in trail. Significant to a small business, but usually tiny compared with the thousands you’ll pay in annual interest.

For instance, a rate difference of 0.20% p.a. on a $700,000 loan is about $1,400 per year in interest. That dwarfs small commission variations.

A broker acting under BID should be focused on those borrower savings, not shaving a few hundred dollars in commission differences.

3.3 Clawbacks: where your early refinance can sting your broker

Most lenders include a clawback clause – they reclaim part of the upfront commission if:

• You refinance or discharge the loan within the first 12–24 months.

A typical pattern (varies by lender):

• 0–12 months: up to 100% of upfront clawed back.
• 13–24 months: around 50% clawed back.

Worked example:

• Loan: $900,000.
• Upfront commission: 0.65% = $5,850.
• You refinance after 10 months.
• Lender claws back 100%: broker loses $5,850.

This can tempt some brokers to discourage early refinancing, even when it might be good for you. Good brokers manage this by:

• Disclosing clawback risk and any early‑refinance fees they may charge to cover it.
• Proactively repricing with your current lender before suggesting a refinance.

Your script: “If a better deal appears in 12 months, will you still recommend we move, even if that means a clawback for you? How do you handle that?”