What is a cashback mortgage broker?

Most mortgage brokers are paid a commission by lenders, so you usually don’t need to pay a thing for the services they provide. The commission is compensation for the mortgage broker connecting the lender with new customers. These typically include an upfront commission and a trail commission.

Sometimes mortgage brokers pay the ongoing trail commissions they receive to “referring parties”, such as real estate agents, accountants and financial planners.

Cashback mortgage brokers generally credit all ongoing lender commissions, in cash, to the borrower. These funds are usually paid by the lender on a monthly or annual basis for the life of the loan. Most cashback brokers retain their upfront commissions but these costs are not paid by the borrower, they’re paid by the lender.

What you do with your cashback savings is up to you. Cashback mortgage brokers typically credit borrowers their trail commissions each month when they receive them, meaning you could regularly direct these rebates towards further paying off your home loan faster.

This can add up to tens of thousands of dollars over the loan term and potentially shave years off your mortgage.

A cashback mortgage broker is generally no different from a standard mortgage broker. However, some cashback mortgage brokers require customers to retain their mortgage with the same lender for a minimum specified period (e.g 18-24 months). The reason for this is that banks and lenders may recall the commissions paid if a loan is closed within this time. This means that you may not be able to refinance your mortgage until you see out the stated period.

What are mortgage broker commissions?

In compensation for their services mortgage brokers generally charge two types of commissions. Firstly, an upfront commission, usually paid by the lender in return for introducing its home loan products to homebuyers. Secondly, a trail commission, which is a deferred payment, also paid by the lender to the broker every month over the life of the loan, as long as the borrower keeps up with their repayments.

According to Blue Fox Finance, the average mortgage broker commission rates are:

• Upfront Commission: 0.65% - 0.70% of the loan amount + GST in most cases.
• Trail Commission: 0.15% of the loan balance each year.

The amount that you’ll pocket will depend on the lender in question. Some loan providers offer larger commissions than others, but most brokers should be able to tell you what to expect during the application process.

Some brokers will pay you these commissions on a monthly basis, while others may offer an annual sum. Generally, you’ll nominate a bank account where your funds will be directed.

Depending on the agreement, some cashback mortgage brokers may cap the amount of cash they'll pay you. 

Cashback payments will generally extend for the life of the loan, so long as you remain with the same lender. If you do switch lenders, and it’s before the specified home loan retainment period expires, you may be forced to repay all of the trail commissions (cashback payments) you’ve received.

It’s best to check the full terms and conditions with your broker before committing to their services.

Cashback mortgage brokers claim to offer the same types of mortgages and rates as regular mortgage brokers.

All Australian mortgage brokers must possess either an Australian Credit License (ACL) or be an Authorised Credit Representative (ACR) under a licensed entity. Operating under these licences, mortgage brokers are legally obligated to reveal any potential commissions they might earn by suggesting different loan alternatives to you.

Moreover, brokers are legally obligated to prioritise your best interests when you're in the market for a home loan. The introduction of Best Interests Duty laws in 2021 reinforce this principle. These laws stipulate that mortgage brokers cannot simply suggest to borrowers the loan offering the highest commission; instead, they must always act in the client's best interest when providing financial guidance.

When it comes to cashback mortgage broker services you may benefit from higher trail commissions, although it’s possible that lenders may be incentivised to pay lower trail commissions on cashback broker loans. 

However, cashback offers shouldn’t be the only reason you’re taking on a particular mortgage.

Additionally, some cashback mortgage brokers may charge a nominal administration fee (e.g. $10 per month) to administer the cashback. You may be able to designate that this cost be deducted from your cashback, so there’s no need to pay upfront. Beware that some brokers also charge their customers an upfront commission fee, calculated as a percentage of the loan value. Check with your selected broker to see what, if any fees, may apply.

You’ll want to compare a range of home loan options, do your own research and discuss the advantages and disadvantages of different loans and features with your chosen mortgage broker.

Remember, don’t be afraid to ask plenty of questions! A home loan is often a decades-long commitment and potentially the largest debt you’ll ever service in your lifetime. It’s important to make a measured, calculated decision based on your personal financial situation and goals.

The fact that you’re aware that the banks pay brokers commissions - both upfront and ongoing - to gain and retain your business can be used as leverage when attempting to secure a better rate from your current lender. If you’re considering refinancing, it may be beneficial to call your bank and put pressure on them to offer you a better deal.