Do mortgage brokers have fees?

The complicated process of taking out a home loan can be made simpler by engaging with a mortgage broker. But will it leave you out of pocket?

How much does a mortgage broker cost?

Working with a mortgage broker in Australia is typically a fee-free process. While some brokers may charge their clients for their services, you’ll find that the majority do not.

Rather, they earn their income through commission paid by the lenders they have professional relationships with. Those who do charge a fee may do so instead of, or as well as, accepting commission from lenders. It’s likely that a broker will let you know if they charge a fee before providing you with any services, but be sure to ask if you’re unsure.

How do mortgage brokers earn commission?

There are two main types of commission that mortgage brokers tend to earn:

• upfront commission, and;
• trailing commission.

Upfront commission is paid to a broker as soon as you settle on a home loan that they have facilitated for you, while trailing commission is paid each year that you keep the loan. Upfront commission is generally a larger payment than a trailing commission.

According to Blue Fox Finance, the average mortgage broker commission rates are 0.65% - 0.70% of the loan amount + GST for upfront commissions and 0.15% of the loan balance each year for trail commissions

Both types of commission are paid to the broker by the lender you ultimately choose to take out your mortgage with, as a percentage of your loan amount. Some brokers will get paid a set percentage by a lender, regardless of which loan they recommend, while others might receive a higher fee for offering certain loans.

It’s worth keeping this in mind, as it could play a part in the advice you receive. However, brokers are obligated by law to act in your best interest and provide transparency around their recommendations.

If you use a new mortgage broker to refinance your home loan, the trailing commission your previous broker received on your original loan will cease, while your new broker will receive both upfront and trailing commissions on your new loan.

For this reason, it’s favourable to your broker to continue to foster a relationship with you long after you’ve been approved for your home loan, advising you on potential refinance options that could be beneficial to you.

Finding a broker that fits your needs will ultimately be a personal preference. Be sure to do your research and ask any questions you may have before choosing a broker to assist you on your home loan search.

Are broker fees tax deductible?

If you’re an investor looking to gain the greatest return on your investment, you’ll be happy to know that in Australia, mortgage broker fees are tax deductible.

In fact, one of the biggest advantages of investing in property outside of the growth opportunities are the potential tax deductions. You should be able to claim interest expenses, as well as upfront costs like any mortgage broker fees.

Loan establishment fees, such as broker fees, loan application fees and even costly lender’s mortgage insurance (LMI) can be tax-deductible. In the case of LMI, and may be depreciated over the first 5 years after the property's purchase.

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