We know that mortgage brokers get paid a commission, but do any mortgage brokers offer a cashback or commission free mortgage service?
Mortgage Broker Commission
A mortgage broker acts as an intermediary between a borrower and lenders.
Mortgage brokers offer a free service to borrowers because they are paid a commission by the lender once the property purchase is settled and the loan is drawdown.
This begs the question, is the mortgage broker working for you the borrower, or the lender who actually pays them.
Mortgage brokers are paid the following commissions:
- Upfront (once the loan is settled)
- Trail (for every year the loan remains outstanding)
Here is a commission guide that outlined the upfront and trail commissions a mortgage broker will receive upon settlement of a loan.
How do Mortgage Brokers Get Paid?
Mortgage brokers get paid by the lender once the loan is settled (upfront) and then monthly for the life of the loan (trail).
CHART: Mortgage Broker Estimated Commission Based on Loan Size
*Based on an average upfront commission for 0.60% and an ongoing commission of 0.20%
The Problem with Commission
Just as Warren Buffett says ‘don’t ask a barber if you need a haircut’, the same applies to mortgage brokers.
The problem with the commission model is that it encourages the following:
- The mortgage broker gets paid different commissions from different lenders, hence they may recommend products with higher commissions even if they are not as suitable.
- The mortgage broker gets paid on the size of the loan, hence they benefit if you get in more debt.
- The mortgage broker gets paid a trail commission for the life of the loan, hence they benefit if you take longer to pay back your loan (or pay interest only).
Cash Back / Commission Free Mortgages
A mortgage broker does not have the option to remove the commission from a loan, however some mortgage brokers are offering to refund part or all of their commission.
Cash Back Mortgages
Cash back mortgage brokers offer the same service as a typical mortgage broker, however they will share some of their upfront commission with you.
One such example is cashbackmortgage.com.au
Commission Free Mortgage
I have only been able to find one mortgage broker who offers commission free mortgages.
This broker charges a flat fee for service, to find you a suitable loan and then will refund all the commission back to you.
Under the fee for service model you can be more certain that the mortgage broker is working for you, because you are paying instead of the lender via a commission.
- Mortgage brokers are paid a commission by the lender once the loan is settled.
- Some mortgage brokers are now offering cashback or commission free mortgages.