Buying your first home is an exciting journey, but it can also feel overwhelming – especially when it comes to understanding the costs involved. One area that first-home buyers often wonder about is mortgage broker fees. If you’re considering using a mortgage broker in Australia, you might be asking: Do I have to pay my broker? How do brokers get paid, and is it better to go directly to a bank?
In this detailed guide, we’ll break down everything you need to know about mortgage broker fees in a friendly, easy-to-understand way. We’ll cover how brokers get paid, different fee structures, real-world examples, comparisons between using a broker and going direct to a bank, the legal protections in place, and common myths. By the end, you’ll be equipped with the knowledge to make confident decisions on your home-buying journey and how working with the best mortgage broker in Brisbane can get you the best deal.
Understanding Mortgage Broker Fees
Mortgage broker fees refer to any money that a mortgage broker earns or charges for helping you arrange a home loan. The good news for Australian first-home buyers is that, in most cases, you won’t actually pay the broker out of your own pocket. Instead, brokers usually get paid by the lender (the bank or finance company) in the form of a commission after your loan is settled. Let’s unpack what that means and why this system exists:
What are mortgage broker fees?
When we talk about broker fees, we’re talking about how brokers make money for the service they provide. Brokers are licensed professionals who act as middlemen between you (the borrower) and lenders. Rather than charging you like a traditional consultant might, Australian mortgage brokers typically earn a commission from the lender for bringing in your business. This commission is effectively a reward from the lender for the broker’s work in preparing and submitting your loan application and helping you through to settlement. In other words, the lender pays the broker, so you usually don’t have to. This setup grew out of the competitive finance market – lenders want brokers to bring them customers, so they’re willing to pay for it.
Why do brokers charge fees (or commissions)?
Just like any professional, brokers need to be compensated for their time and expertise. They research loan options, advise you on borrowing capacity, handle paperwork, and liaise with the bank through approval and settlement. Instead of billing you an hourly rate, most brokers get paid by the lender once your loan is successfully in place. This allows brokers to advertise their service as “free” to the borrower, making it more enticing for first-home buyers on a tight budget. However, it’s not charity – the broker’s commission is a cost to the lender for acquiring a new loan customer. From the lender’s perspective, paying a broker is similar to paying their own loan officers or marketing costs. Importantly, this commission cost is not added to your loan interest rate or fees. Getting a loan through a broker typically has no direct impact on the interest or repayments you pay. Banks offer the same rates whether you go direct or through a broker.
How do brokers get paid?
Brokers in Australia mostly earn money through a commission-based structure. There are two main types of commissions:
- an upfront commission paid shortly after your loan is settled,
- and a trailing commission paid periodically (usually monthly) over the life of the loan
- In some cases, brokers might also charge a direct fee to the borrower, but this is relatively rare.
Overall, the typical model means that when your home loan is settled, the lender will pay the broker a percentage of the loan amount as an upfront commission and then a smaller ongoing percentage each year as the loan balance reduces. This way, brokers earn a living by closing loans and keeping clients happy.
Types Of Mortgage Broker Fee Structures
Not all broker fees are created equal. While most Australian brokers rely on lender-paid commissions, it’s important to understand the different fee structures you might encounter:
Upfront Commission (Lender-Paid):
This is the primary way most mortgage brokers get paid. An upfront commission is a one-time payment from the lender to the broker, calculated as a percentage of your loan amount. In Australia, the typical upfront commission ranges from about 0.5% to 0.7% of the loan amount. For example, on a $500,000 home loan, a 0.65% commission would be $3,250 (plus $325 GST). The lender pays this to the broker after your loan settles, usually within a few weeks. Brokers are obliged to disclose their commission to you during your loan process, so you can always ask and you should be informed exactly how much they’ll earn from your deal. Some lenders structure commissions slightly differently – for example, calculating commission on the loan amount minus any offset account balance at settlement. But the concept is the same: a one-off percentage of the loan value.
Trailing Commission (Lender-Paid):
In addition to the upfront payment, many lenders also pay brokers an ongoing trailing commission (sometimes called a trail commission) as long as the loan remains in place. This is usually a small annual percentage of the remaining loan balance, paid monthly. Typical trailing commissions range around 0.1% to 0.2% per year of the loan balance. Using our $500,000 loan example, if you still owe $500,000 after the first year, a 0.15% trail would be $750 that year (often paid as about $62.50 per month), and it will gradually decline as your loan balance is paid down. Trail commissions are effectively a way to encourage brokers to provide ongoing service and support to their clients. For instance, your broker might assist you with loan variation, questions, or refinancing down the track. If you refinance with a new lender or pay off the loan, the trailing commission stops and if it’s very early on, some of the upfront might be clawed back – more on “clawback” below. Some lenders structure trail commissions to start lower and increase after a couple of years (to reward brokers for loans that stick around), but overall, the differences aren’t huge.
Brokerage Fee / Upfront Fee (Borrower-Paid)
While the vast majority of Australian mortgage brokers do not charge customers directly, there are exceptions. About 85% of broker businesses don’t allow their brokers to charge an upfront fee to clients, implying around 15% might under certain conditions. A brokerage fee is usually a flat fee or a percentage that you pay out of pocket to the broker for their service. This could be charged instead of a commission. For example, truly independent brokers who rebate any lender commissions and charge you a service fee. In addition to the commission, a broker might, for example, charge a one-off $1,000 fee for a very complex loan that requires extra work on top of whatever commission they get from the lender. Some brokers may have a policy of charging a fee if the loan amount is below a certain threshold because the commission on a small loan might not cover their costs. Always check upfront if your broker charges any fees – by law, they must disclose this in their credit quote or upfront agreement.
Hidden Mortgage Broker Fees or Indirect Costs
You might hear people talk about “hidden fees” with brokers. This doesn’t mean underhanded charges slipped into your contract (brokers are legally required to be transparent), but rather aspects of broker compensation that the borrower might not immediately see. One example is the soft dollar incentives that brokers historically could receive – things like bonus commissions, overseas trips, gifts, or tickets for hitting sales targets with a particular lender. In the past, such perks raised concerns about conflicts of interest. Finally, one potential hidden cost to be aware of is early loan termination. If you pay off or refinance your loan very quickly, usually within 2 years, the lender will claw back the commission from the broker, and some brokers may have clauses to pass that cost onto you. This isn’t a fee you pay at the outset, but it could bite later if you’re unaware. We’ll explain clawback fees next.
Clawback Fees (Recovering Commission)
Clawback isn’t a fee you pay to the lender or broker in the normal course, but it’s a mechanism that can affect broker compensation and potentially cost you if you’re not careful. Lenders want the loans that brokers bring in to stay on the books for a reasonable time – otherwise, the lender paid that upfront commission for nothing. So, standard practice in Australia is that if a loan is paid off or refinanced within the first 12 to 24 months, the lender will claw back (ask the broker to repay) some or all of the upfront commission. Typically, if a loan closes in the first year, up to 100% of the commission is clawed back; in the second year, maybe 50% is clawed back. For example, if you refinance to another bank 18 months after settlement, your broker might have to refund half their commission to the original lender. Now, what does this mean for you as a borrower? Many brokers simply accept clawback as a business risk and won’t charge you anything. However, some brokers include a clause in their agreement with you that if a clawback occurs, you will reimburse them for that amount.
Let's illustrate this with a concrete example
Say you borrow $400,000 to buy your first home. Your broker submits your application to Lender X and it settles. If Lender X pays 0.65% upfront commission, the broker’s company would get $2,600 (0.65% of $400k) plus $260 GST, so $2,860 total. Then, each month, Lender X pays 0.15% annual trail. If your balance is still ~$400,000, that’s roughly $50 a month initially. A year later, maybe you’ve paid the loan down to $390,000, so the trail for that year might be around $585. These payments might not go directly into the individual broker’s pocket. Often, they first go to the broker’s aggregator or brokerage firm, which then splits the commission with the individual broker. But that’s more of an internal business arrangement. The key point is that you didn’t pay anything to the broker, but the broker made about $3,445 in the first year off your loan, then a few hundred each year after. Over, say, 5 years, if you stay with Lender X, the broker might accumulate around $5,000 from that one loan. This compensation fuels their business and keeps the service running for you.
Case Study 1: The Typical First-Home Buyer Using a Broker
Alex is a first-home buyer in Brisbane. Alex has saved up a deposit and is buying a $600,000 apartment. He needs a $480,000 home loan (which is 80% of the property value, avoiding LMI). Alex decides to use a mortgage broker recommended by a friend. One of Alex’s first questions is, “How much will your service cost me?” The broker explains that there’s no direct fee – they will be paid by whatever lender Alex ends up choosing, and they will disclose that commission. This broker has a panel of 30 lenders, and after assessing Alex’s situation, they suggest a few options. Alex ends up choosing a major bank that offers a competitive interest rate and a $0 application fee. The broker even mentions they often can get annual package fees waived for their clients. The loan is approved and settled.
The loan amount is $480,000. The chosen bank pays brokers 0.65% upfront commission plus GST and 0.15% annual trail plus GST. So approximately 0.715% upfront (0.65% + 10% GST) and 0.165% trail (0.15% + GST). At settlement, the bank will calculate 0.65% of $480k = $3,120, plus $312 GST = $3,432. Alex is not charged a cent of this – it’s entirely a lender expense.
Over the first year, the average loan balance might be, say, $475,000 (if Alex makes some progress on the principal). The broker’s trail for that year at 0.15% would be ~$712 (plus GST). That gets paid in monthly increments, roughly $59 a month. Alex doesn’t notice anything different about his loan compared to if he’d gone directly – his interest rate is the same as the bank advertised because the broker helped negotiate. He even saved the $395 annual package fee the bank normally charges.
Alex’s experience with the broker is very positive. The broker helped him handle the paperwork, compare options, and even find a loan product with features he wanted (an offset account and the ability to make extra repayments). Alex didn’t have to pay the broker. Everything was transparent – the broker provided a document showing “Commission payable by Lender: $3,432 upfront, approx. $712 in the first year of trailing commission”. Alex was curious and asked if those commissions affected his deal; the broker showed him that another lender option would have paid them $3,600 upfront but had a higher interest rate, which would have cost Alex far more in interest over time. So Alex felt reassured that the broker truly acted in his best interest.
Fast forward 3 years: Alex’s loan is now $440,000 (he’s been making extra repayments). The broker is still receiving a trail commission, now about $660/year, because the balance dropped. The broker periodically emails Alex with interest rate updates. When rates fell last year, the broker proactively contacted the bank and got Alex’s loan rate reduced by 0.20% as a retention strategy. This kind of service is part of why trail commissions exist – the broker is incentivised to keep helping Alex so that Alex remains a satisfied client and doesn’t refinance elsewhere. If Alex does decide to refinance to get a much better deal, he might go back to the same broker, who could then earn a new upfront commission from a new lender, but they’d lose the old trail. Brokers have to weigh these things, but ultimately, if it’s right for the client, a good broker will help them switch and take the new commission rather than clinging to the old trail.
Outcome: Alex, as a first-home buyer, paid $0 in broker fees, got a great loan with lower fees, and had an expert guide him – all funded by the lender’s commission payment. The broker earned a fair commission for the work done and continues to earn a small passive income as long as Alex stays with that lender. This is a win-win under the typical broker model.
Lender-Paid vs. Borrower-Paid Mortgage Broker Fees
In Australia, lender-paid commissions are the norm. This contrasts with other countries (for instance, in the US, borrowers often pay broker points or fees directly). Here’s what to know:
Lender-Paid (Commission) Model
As we’ve described, the lender covers the broker’s payment via commission. From a first-home buyer’s perspective, it often feels like “the broker is free”. Indeed, most Australian mortgage brokers do not charge a direct fee to consumers. They receive their remuneration from the lender once the loan is in place. This model took off in the 1990s as the mortgage broking industry grew. It allowed brokers to compete with bank branch loans by offering their service at no direct cost to borrowers, essentially levelling the playing field and encouraging more people to use brokers. One concern people sometimes raise: “If the bank pays the broker, will my interest rate be higher to cover it?” However, lenders typically do not price loans higher for broker customers. A government report by ASIC found broker-negotiated loans had interest rates roughly equivalent to direct loans.
Additionally, think of it this way: if you walk into a bank branch, the bank has to pay the salary of the loan officer assisting you – that cost is built into their business model. If you go through a broker, the bank pays the broker a commission. Either way, the bank has acquisition costs. In fact, because brokers can often shop around for better deals for you, you might end up with a lower interest rate or fewer fees than if you just accepted whatever your bank offered you.
Borrower-Paid (Fee for Service) Model
While uncommon, some brokers operate on a fee-for-service basis or use a hybrid model. For example, an independent mortgage broker might advertise that instead of taking commissions, they will charge you a flat fee (say $2,000) to arrange your loan and rebate any lender commission back to you or towards your loan. This is not typical among mainstream brokers, but a few market themselves this way, especially to sophisticated investors or complex borrowers. Another instance of borrower-paid fees is if you engage a broker for a very tricky scenario – perhaps a private loan or a lender that doesn’t pay broker commissions. The broker might say, “I can get this deal done, but I’ll need to charge you a $X fee because the lender won’t pay me much or at all.” According to industry data, only a small minority of loans involve borrower-paid broker fees. As a first-home buyer, you won’t likely encounter a borrower-paid fee, but it’s wise to confirm. Ask the broker, “Do you charge any fees to me, or do you solely get paid by the lender?” They will tell you, and it should also be in the disclosure documents they give you.
Different Lenders, Different Commissions
It’s natural to wonder if brokers get paid more by some lenders than others and whether that could sway their recommendations. The reality is that while there are differences in commission structures, they are usually pretty minimal across the major lenders. For instance, one bank might pay 0.65% upfront and 0.15% trail, another might pay 0.70% upfront and 0.20% trail – on a $400k loan, a difference of a couple hundred dollars in the first year. It’s seldom enough to justify a broker knowingly putting a client on a worse loan just for a tiny bump in commission, especially now that brokers are legally bound to act in the client’s best interests. Most brokers value their reputation and your satisfaction over a slight commission difference. Commissions are unregulated by law, yet competition keeps them within a narrow range. There have been cases of smaller non-bank lenders occasionally offering a higher commission to attract brokers’ attention. Brokers must disclose if a particular lender is paying them an unusually high commission or giving other benefits. Also, industry associations like the MFAA and government bodies have put a spotlight on this to ensure transparency. For example, lenders providing “soft dollar” incentives (like trips or gifts) must disclose these, and many brokers have stopped accepting such benefits to avoid conflicts.
Aggregator and Network Influence
Your broker might be part of an aggregator or franchise. Aggregators can have hundreds of brokers and provide them access to a panel of lenders. Sometimes, an aggregator is partially owned by a lender or has special arrangements. For example, a big bank might own a stake in an aggregator, and statistically, that bank might get a slightly higher share of loans from brokers in that network. However, this doesn’t mean brokers are forced to send business to that bank; it might simply reflect brand familiarity or occasional incentives. The key for you is that no matter the network, your broker must disclose any conflicts and still act in your best interest by law. If you’re curious, you can ask, “Do you have any ownership ties or volume bonus arrangements with any lenders?” and the broker should be forthcoming. Many brokers will proactively tell you if, say, they have a volume-based bonus from a lender (e.g., some lenders might pay an extra 0.05% if a broker writes a large volume with them in a quarter.) But again, that’s relatively rare or being phased out post-Royal commission.
Simply put, The standard in Australia is that the lender pays the broker’s commission, and the borrower typically pays nothing to the broker directly. Different lenders pay roughly similar rates, so a good broker’s recommendations won’t be skewed heavily by commission. You should always feel free to ask your broker how they’re paid for your loan and how much. By law, they’ll have to provide a Credit Proposal Disclosure that shows the dollar amounts of commission for the recommended loan. This transparency means you won’t be kept in the dark about their compensation.
Case Study 2: A Broker Charges a Fee for a Complex Scenario
Mortgage Broker vs. Going Direct to a Bank
One big decision for home buyers is whether to use a mortgage broker or deal directly with a bank for their home loan. Each approach has its pros and cons, and understanding them will help you make an informed choice. Since this article is about fees, we’ll start with the cost comparison, then broaden to other advantages and disadvantages of each route.
Cost Comparison: Mortgage Broker Fees vs. Bank Application Fees
From a pure cost perspective, using a mortgage broker usually does not add any extra fees to your loan application. As we’ve discussed, brokers typically get paid by the lender’s commission, not by charging you. If you go directly to a bank, you also generally don’t have to pay any “broker fee” since there’s no broker involved – but you will face whatever fees the bank normally charges for a home loan.
Common fees when going direct to a bank (or any lender):
Application or Establishment Fee: Many lenders charge a one-time fee to set up the loan. It can range from $0 (some lenders waive it as a competitive incentive) to around $600–$800 for others. For example, a bank might have a $600 application fee. If you use a broker, that same fee would still apply unless the broker negotiates it waived. Some brokers know which lenders have current promotions or flexibility to waive application fees, and they can help get that waived for you. Brokers often negotiate with their bank BDMs to waive fees to win your business. In fact, some brokerages boast high success rates in getting such fees waived for their clients. If you go directly, you could try to negotiate yourself, but you might not know that waivers are possible. So, using a broker is an advantage in that sense.
Ongoing Annual Fees or Package Fees: If your loan is part of a package (with an offset account, credit card, etc.), there might be an annual fee of usually $300 or $400. This fee is the same whether you are broker-introduced or direct. However, as seen in our case study, sometimes brokers can secure discretionary discounts, like waiving the first year’s annual fee or getting a lower ongoing fee for certain client profiles. Banks might offer those to direct customers as well, especially if you ask, but brokers tend to know what’s feasible because they deal with these banks regularly.
Interest Rates: A critical “fee”, in a sense, is the interest you pay over time. It’s not a fee per se, but it’s the biggest cost of the loan. Do brokers get the same rates as banks offer directly? Generally, yes – and sometimes even better. Lenders often have special broker-only promotions or pricing discounts for broker customers because brokers bring high volumes. Meanwhile, banks also offer retention and loyalty discounts to direct customers. It evens out, but the key is brokers can shop the market. If you walk into one bank, you get one rate quote. A broker can get you several quotes. According to ASIC’s research, there is no evidence that going through a broker results in a higher interest rate. If anything, brokers’ clients, on average, might end up with similar or slightly better rates than if they navigated the market alone due to competition. So, from an interest cost perspective, brokers are not disadvantageous.
Broker’s Own Fees: If the broker charges you a fee (which, as we noted, is rare for first-home buyers in standard situations), then going with a broker could have that additional cost. Going directly to the bank obviously avoids any broker fee because there’s no broker. So, in the few cases where a broker does have a fee-for-service, you’d want to weigh that against the benefits they’re providing.
In summary, for the vast majority of first-home buyers, using a broker will cost the same or less than going direct to a bank. Thanks to the broker’s knowledge or relationships, you’re not paying the broker and potentially saving on lender fees. Meanwhile, the interest rates are comparable.
One user-friendly way to look at it: imagine two parallel universes – in one, you go straight to Bank A; in the other, you go to Bank A via a broker. In both cases, your loan, rate, and bank fees are identical, except in the broker universe, where the bank pays a commission to the broker that you never see. There is no scenario where the bank says, “Oh, you came through a broker, and we’ll charge you a higher interest rate to cover the broker’s commission.” That just doesn’t happen in Australia. Lenders want broker business. Almost three-quarters of Australians use brokers now, so they price loans to be competitive whether or not a broker is involved.
Pros Of Using A Mortgage Broker
There are several advantages to using a broker beyond just the absence of broker fees:
1. Access to Many Lenders and Products
A broker gives you a one-stop shop to compare loans from multiple banks and lenders. Instead of you having to visit or call 5 different banks and collect quotes, the broker can quickly survey their panel (often 20+ lenders) and narrow down the options. This is especially valuable for first-home buyers who might not know which lenders are more favourable to certain situations; for example, one lender might be more generous with borrowing capacity, another might have a better first-home buyer deal, etc. Brokers often have real-time tools to compare interest rates, fees, and features across lenders. This breadth of choice can lead to a better outcome – whether it’s a lower interest rate, lower fees, a higher loan amount approval, or a lender that accepts your unique circumstances. Essentially, brokers increase competition among lenders for your business.
2. Convenience and Guidance without mortgage broker fees
Buying your first home comes with a steep learning curve. A broker acts as a guide, walking you through the process step by step. They can help you understand your borrowing power, complete the application and manage communication with the lender. They know exactly what documents are needed and how to present your case. They’ll liaise with the bank’s credit department, the settlement agents, and sometimes even with the real estate agent to confirm details of settlement dates. This takes a lot of stress off you. Here at Hunter Galloway, we try to make the process “stress-free and uncomplicated”, working to make your home ownership dreams a reality. For a first-home buyer, having an expert to answer your newbie questions is incredibly valuable – and it’s part of the service a good broker provides at no cost to you.
3. Expertise in Loan Structuring
Brokers don’t just compare rates; they also advise on loan structure and features based on your goals. For example, they can explain the difference between fixed and variable rates, help you decide whether an offset account or redraw facility is useful for you, and structure the loan to suit any future plans like turning the property into an investment later, etc. They also ensure you understand all the costs. They will outline not just the bank fees but also government fees, LMI if applicable, etc., so you’re not caught off guard at settlement. Essentially, a broker can serve as both an educator and a strategist for your home loan.
4. Negotiation Power
Brokers often have relationships with bank representatives (BDMs – Business Development Managers) and know how to negotiate. If one lender’s offer is slightly higher in rate than another’s, a broker can sometimes go to that lender and say, “I have a client who likes your product, but Lender B is offering 0.10% less – can you match or beat it?” Banks know that brokers will take the deal elsewhere if they don’t compete, so this can spur them to sharpen their pencils. Direct customers can negotiate, too, but you, as an individual, might not have the same clout or knowledge of what’s possible. Brokers also stay on top of promotions – like cashback offers, fee waivers, or special low rates for certain borrower categories. They’ll make sure you don’t miss out on these if they’re relevant. The value brokers provide often extends beyond just finding a loan – it’s making the lender fight for you a bit more.
5. Ongoing Relationship and Support
After your loan settles, a broker typically remains available to you for any questions or future needs. They can help with loan top-ups, switching from interest-only to principal-and-interest, fixing your rate when timing is right, or doing a review every couple of years to make sure your rate is still competitive. They essentially become your go-to person for home loan matters, whereas if you go directly to a bank, you might call a general customer service line for any issues, and the specific banker who helped you might have moved roles or not be easily reachable later. Brokers build their business on relationships and referrals, so they’re motivated to keep you happy for the long run. Many first-home buyers stay with the same broker for their second or third property, refinancing, etc., because of the trust built.
6. Best Interests Duty For Mortgage Broker Fees
As of 2021, mortgage brokers in Australia are legally bound by a Best Interests Duty to act in the best interest of their clients. This is a significant regulatory protection – it means the broker must prioritise your interests over their own or anyone else’s. If you go direct, bank lenders do not have this duty; a bank lender’s job is to sell the bank’s products. They have obligations not to mislead you, of course, but they don’t have to recommend the best loan in the market for you – they will offer what their bank has. The Best Interests Duty ensures that a broker should not, for example, steer you to a lender just because of a higher commission or a soft incentive. If they did and it wasn’t in your best interest, they would be breaching the law. This duty came from regulatory changes acknowledging the potential conflict of commission-based pay. So, using a broker gives you the advantage of this extra layer of fiduciary responsibility. In practice, it means you can expect the broker to be able to articulate why the loan they suggest is right for you and possibly better than alternatives beyond just “it got approved.” It’s a big win for consumers and tilts the scales in favour of brokers doing the right thing by clients.
7. Higher Chance of Approval
A subtle advantage is that brokers can improve your chances of loan approval by matching you with the right lender and packaging your application properly. Each lender has different credit policies. A broker knows that Lender A might decline if you’ve changed jobs recently, but Lender B might be fine with it – or that Lender C is more lenient on certain expenses. By steering you to a lender that fits your profile, the broker avoids unnecessary declines on your record. Also, they check your documents thoroughly and present them in the lender’s preferred format, potentially catching issues early. For example, noticing a default on your credit report and addressing it in the application notes. Going direct, you might apply to one bank, get declined and wonder why, then have to try another, etc. Brokers help avoid that trial-and-error by leveraging their knowledge. For first-home buyers with limited knowledge of lending criteria, this can be a lifesaver.
To illustrate, consider that around 74–76% of all new home loans in Australia are now written by mortgage brokers. That record-high market share suggests that Australians see a lot of value in brokers – convenience, choice, and service. The CEO of the Mortgage & Finance Association of Australia (MFAA) noted that brokers are now the preferred choice for borrowers navigating a complex lending environment, providing personalised guidance and support throughout the loan journey. This trend wouldn’t happen if brokers were seen as unnecessary middlemen or at extra cost – clearly, they add value.
Cons (and Considerations) of Using a Broker
In fairness, let’s consider the potential downsides or criticisms of using a broker versus going direct:
1. Limited Panel
Brokers have access to many lenders, but not every single lender. Some small credit unions or a specific bank might not deal with brokers or not be on a particular broker’s panel. If you have your heart set on a very specific product that your broker cannot access, then the broker route might not help you. However, most major and mid-tier lenders are available through brokers. You can ask your broker which lenders they are accredited with. In Australia, the vast majority of banks and even many non-banks are available via brokers. So, this is a minor issue. Still, it’s wise to ensure your broker isn’t too limited – if they only have 5 lenders on their list, you might be missing out on options.
2. Potential Conflicts of Interest
The commission system could, in theory, bias a broker. For example, without regulations, a broker might be tempted to recommend a lender that pays a slightly higher commission or offers a big incentive trip. As discussed, regulations (Best Interests Duty) and relatively uniform commissions have mitigated this. And brokers live off referrals and good customer outcomes, so it’s against their long-term interest to be greedy in the short term. Nonetheless, consumers should be aware of this and ensure the broker provides comparisons and reasoning. A red flag would be if a broker cannot clearly explain why a certain lender is best for you or if they seem to be pushing one lender without showing you alternatives. Good brokers often present a few options and then make a recommendation. The industry has also addressed conflicts by banning certain practices.
3. Quality Varies
Not all brokers are equally experienced or skilled. Just as with any profession, there are rockstar brokers and there are mediocre brokers. If you happen to get a broker who isn’t very knowledgeable or is new and doesn’t have good mentorship, you might not get much more value than you would by doing it yourself. They might even submit your application poorly, causing delays or issues. That said, an inexperienced bank employee could also fumble an application. One way to mitigate this is to choose a broker with a good reputation – perhaps one that specialises in first-home buyers or comes recommended by friends/family. Check if they are a member of MFAA or FBAA and that they have an Australian Credit License or are a representative of one (which is required by law). You can also look at reviews if they’re an established firm. In short, brokers are generally great, but do your due diligence on the individual broker or brokerage.
4. You Still Need to Provide Documentation
Some people think using a broker means they won’t have to do much. It’s true the broker will handle a lot, but you, as the borrower, still have to gather your payslips, bank statements, IDs, etc. The broker can’t magically bypass the paperwork – they just guide you through it and check it. If you went directly to a bank, you’d have to provide the same documents. The difference is the broker will usually package it for you and might use one set of documents to apply to multiple lenders if needed, saving you duplication. This “con” is really just setting proper expectations – a broker isn’t a completely hands-off approach, but it eases the process significantly.
5. Added Communication Layer
Occasionally, having a middleman means messages go back and forth a bit more. For example, if the bank needs an extra document, they tell the broker, and the broker tells you to give it to the broker, and the broker gives it to the bank. This can introduce minor delays or the risk of miscommunication if the broker isn’t attentive. Most of the time, brokers stay on top of it, and it’s not an issue. If you go directly, the bank would call you directly for that document. Some people like having direct control, while others prefer having the broker handle the nagging. It depends on your style. A proactive broker will keep you updated at every step, and many have systems that send you updates when milestones are reached. If you feel out of the loop, you can always ask your broker for a status, and they’ll check with the lender. In reality, this is usually a small trade-off for not having to personally chase the bank.
6. Brokers Can't Approve the Loan Themselves:
Remember, a broker facilitates the loan but the approval decision is still the lender’s. If a bank declines your loan through a broker, it’s essentially the same outcome as if you were declined in the branch. A great broker will try to pre-empt any issues and only submit where there’s a good chance, but they can’t guarantee approval. So don’t think using a broker is a magic bullet for approval – it isn’t, but it certainly improves your odds by matching you correctly and presenting your case well.
What Are The Pros Of Going Direct To A Bank?
There are a few situations in which some borrowers prefer going direct:
- If you have a very strong existing relationship with a bank, maybe you’re a private banking client, or you really trust your bank manager, you might feel more comfortable dealing directly. You might get personalised service from that bank’s staff – although you could likely still do the loan via a broker and continue to work with your bank for other things.
- Some people believe, often mistakenly, that they’ll get a better deal by cutting out the middleman. Banks might even imply this, but as we’ve explained, the rates are generally the same. However, occasionally, a bank might have a special retention offer for existing customers that they don’t publish to brokers. If you’re a loyal customer with significant assets at that bank, you could negotiate something unique. Brokers can usually still access loyalty matches, but a direct heart-to-heart with your bank manager could yield a slight benefit – it’s not common, though.
- Direct to the bank can be a bit faster in communication since you talk to the decision-makers directly. But for a borrower, this doesn’t usually translate to faster approval – banks have their process and service times, whether it’s broker or direct, and often, the broker channel is equally quick or even prioritised in some cases.
- One less entity involved – if you are very private and don’t want to share your financial info with an additional person, you might go directly to the bank. Though brokers and banks are both bound by privacy laws to protect your info.
However, in the balance, for first-home buyers especially, the scale tips towards using a broker for the majority of people. The personalised guidance, ability to compare lenders, and not having to pay for the service make it extremely attractive.
To sum up this section, Using a mortgage broker often results in equal or lower costs compared to going direct and provides numerous benefits in terms of choice, convenience, and expertise. Going directly to a bank might make sense if you are already certain that one bank is your best option and you enjoy handling the process yourself, but you likely won’t save money by avoiding the broker – the bank won’t give you a rebate for not using one! On the other hand, a broker might save you money by finding a better loan, which will certainly save you time and offer support.
Case Study 3: Comparing Broker vs Bank Direct for a First-Home Buyer
Chris and Dana are a young couple purchasing their first home. They’re tech-savvy and decided to research loans in two ways: Chris went directly to his longtime bank to inquire about a home loan, while Dana contacted a mortgage broker to see what they could offer. They ended up with two different loan quotes:
- Direct to bank: Big Bank Ltd pre-approved Chris for a $500,000 loan at a 6.00% interest rate (let’s assume for this example) with a $600 application fee and a $300 annual package fee. They told him since he’s an existing customer, they’d give him a 0.1% loyalty discount off the standard variable rate already factored into the 6.00%. The process involved Chris meeting an appointment banker, providing documents, and waiting a week for the pre-approval. The banker, of course, only offered the big bank’s own products.
- Using a mortgage broker: Dana’s broker did a full analysis and identified a few lenders that fit their needs. One was actually a big bank (through the broker channel), offering the same 6.00% rate. However, another was a smaller lender offering 5.85% for the same type of loan, with no application fee and a $250 annual fee. The broker explained all the features. Dana was inclined to go with the cheaper lender that the broker found since a 0.15% lower rate on $500k saves them about $750 in interest in the first year, and the upfront fees were lower, too. The broker got them pre-approved with this lender within a few days.
Now, from a cost perspective: When they compared notes, they would pay $600 + $300 = $900 in fees in year 1 to Big Bank, whereas using a broker, they would pay $0 + $250 = $250 in fees to the better lender. The interest rate difference was also significant over time. So, they decided to proceed with the broker’s option. The broker’s service cost them nothing – they didn’t have to pay the broker for this advice or for handling the application since the lender will pay the broker a commission after settlement. Meanwhile, going directly to the big bank wouldn’t have involved a broker commission at all, but it wouldn’t have given them visibility of other lenders.
Note: Had the couple insisted on staying with their main bank through the broker, the broker could have arranged the loan for him as well. The rate and fees would have been essentially the same; sometimes, brokers even have access to the same loyalty discounts or campaign offers the bank does. So, using a broker doesn’t mean you can’t stick with a certain bank if you want – it just means you have an advocate to handle the process.
Legal and Regulatory Insights on Mortgage Broker Fees
The mortgage broking industry in Australia is regulated to ensure brokers act ethically and transparently, especially regarding how they get paid. In the past, there were concerns that the commission-based model could lead to poor outcomes for consumers, which led to significant scrutiny, particularly during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in 2018-2019. The result has been a series of regulations and industry reforms that provide insight and protection for you as a borrower. Here are the key legal and regulatory points regarding broker fees and commissions:
Best Interests Duty
Starting January 1, 2021, mortgage brokers are subject to a Best Interests Duty as part of the law. This means brokers must act in the consumer’s best interests when providing credit assistance. Simply put, your broker is legally obligated to put your interests first – above the interests of any lender and above their own interest in earning a commission. If there’s a conflict of interest, they must resolve it in your favour. This duty was a direct response to the recommendation of the Hayne Royal Commission, which wanted to ensure brokers work for the borrower, not the banks, even though banks pay them. For consumers, this is a powerful protection – it gives you recourse if a broker were to, say, push you into a clearly unsuitable loan for some selfish reason. In practice, brokers now document why the loan they recommended is in your best interests. If ever challenged, they need to show evidence of acting in your best interest. The MFAA has reported that brokers being bound by Best Interests Duty has further increased trust with consumers.
Disclosure of Commissions and Fees
Australian brokers must provide several disclosure documents during the process:
Credit Guide: Early on, a broker will give you a Credit Guide which includes information about their license, how they operate, your right to complain, etc. It typically also mentions that they get paid commissions from lenders and lists the panel of lenders they deal with.
Credit Proposal Disclosure / Borrower Disclosure: When the broker presents you with a recommended loan (credit proposal), they must give you a document that discloses the exact commissions they would receive if you proceed with that loan. This usually includes the upfront and trail commission in dollar terms (or a range if not ascertainable exactly). It may also disclose the commission or comparison for a couple of other main options considered. The idea is to be fully transparent about “What’s the broker getting out of this?” so you can factor that in if you wish. For example, it might say: Loan from Lender X – Upfront commission 0.65% = $3,250, Trail 0.15% = $750 in the first year. This document will also disclose any fees payable by you (e.g. if the broker charges a fee or has a clawback recovery clause). So you won’t be blindsided – read this disclosure carefully. If something is in there that you didn’t discuss (like a $500 fee), question it.
Aggregation and Ownership: Brokers should disclose if they have any associations or ownerships that could influence them. For instance, if a broker firm is owned by a bank or an aggregator that a bank owns, that might be noted (e.g., “XYZ Brokerage is a franchise of ABC Aggregation, which is part-owned by Big Bank”). As a consumer, this is just FYI so you know potential influences, although again, Best Interests Duty means they can’t favour that bank unless it’s in your best interest.
Consumer Protection on “Hidden” Incentives: Post-Royal Commission, brokers and lenders have to eliminate or be very transparent about so-called “soft dollar” benefits – like bonuses, trips, or expensive hospitality given to brokers. The industry largely moved to ban many of these. For example, lenders can still have conferences for brokers, but these are usually capped in value and related to professional development rather than lavish vacations. Any benefit over a certain small value has to be disclosed or logged. So, the regulatory environment has curtailed the extravagant incentive culture that might sway brokers unduly. As a result, commissions remain the main compensation, and you’ll be informed about them.
No Volume-Based Bonus Commissions from Lenders: One of the Royal Commission outcomes was to cease lender-paid volume bonuses and campaign incentives to brokers. The Combined Industry Forum had already been moving towards this. By 2018-2019, most lenders had abolished additional payments to brokers for hitting certain volume targets. So a broker won’t get extra money from the lender just for giving that lender a lot of business (aside from the commissions on each loan). This again reduces conflict of interest.
Clawback and Fee Disclosure
As we touched on earlier, brokers have to be upfront about any clawback arrangements that involve the customer. If a broker intends to charge you if your loan is discharged early, this must be disclosed, often in the contract or credit quote. Regulators have not banned brokers from recovering clawbacks, but they’ve made it clear it needs to be clearly agreed with the customer upfront if they do. Some in the industry have argued clawbacks are unfair to brokers and should be removed or limited, but for now, they remain common in lender agreements.
The Australian Securities and Investments Commission (ASIC) oversees credit licensees and has published regulatory guides that include guidance on disclosure. They did a major broker remuneration review in 2017, which influenced the changes. Now, if a broker doesn’t follow disclosure rules or acts against your interest, you can report them or make a complaint. They are required to be part of an external dispute resolution scheme, which is now the Australian Financial Complaints Authority (AFCA). If you ever felt overcharged or misled by a broker, you could take it up with AFCA. Brokers can face penalties for breaching their obligations.
Royal Commission Recommendations – What Happened
The 2018 Royal Commission initially made some dramatic recommendations:
- Borrower Pays: It is recommended that borrowers, not lenders, pay the broker fee, essentially abolishing the lender commission model. This would have flipped the industry on its head – basically, you’d have to pay your broker a fee and likely negotiate it much like you pay a solicitor or an accountant rather than the bank paying them.
- Ban on Trailing Commission: It also suggested banning trailing commissions on new loans as soon as possible and eventually even banning upfront commissions within a couple of years.
Thankfully, these changes did not ultimately get implemented by the government, since many argued it would reduce competition and access to brokers for ordinary people. In a 2019 response, the government decided to keep the commission model but bolster regulations. They did ban trailing commissions for investments in financial advice and such, but for mortgage brokers, they took a “wait and see” approach.
So, as of now (2025), legally:
- Lenders can still pay upfront and trailing commissions to brokers.
- Brokers cannot charge you a commission like a percentage of a loan on top of what the lender pays. That would be double dipping and would violate conflict rules.
- Brokers can charge a flat fee or consulting fee if disclosed and agreed upon.
- All compensation must be transparent.
- Brokers must act in your best interests and not accept any bribe-like incentives that undermine that.
Industry Standards and Licencing
Mortgage brokers (and their businesses) operate under the National Consumer Credit Protection (NCCP) Act. They must either hold a Credit Licence or be a Credit Representative of someone else’s licence. When you meet a broker, you can actually verify their licence details on ASIC’s Professional Registers. The Credit Guide they give you will list their licence number. This regulatory framework ensures brokers meet responsible lending obligations and now the best interest obligations for brokers specifically.
Brokers often are members of professional bodies like the Mortgage & Finance Association of Australia (MFAA) or the Finance Brokers Association of Australia (FBAA). These bodies have codes of practice that go beyond the law, requiring honesty, integrity, and professionalism. The MFAA and FBAA also require members to continue their education so that they stay up to date. If a broker breaches the code, they can be disciplined or expelled from the association (which would hurt their credibility). While membership isn’t compulsory, many reputable brokers are members.
Privacy and Data: Brokers will collect a lot of personal financial data about you. They are bound by privacy laws to only use it for the purpose intended (getting your loan) and to keep it safe. They typically have you sign a consent to allow them to share your info with lenders for credit proposals. All standard stuff, but worth noting that your data is protected by law similarly as it would be if you gave it directly to a bank.
Consumer Protections Summary
For a first-home buyer using a broker, these are the key protections in place:
- You should receive clear information about how the broker gets paid and any fees you might owe before you proceed to an application.
- The broker must recommend appropriate loans and act in your best interest, not just suggest anything that gets them paid.
- Commissions are relatively standardised across lenders, reducing the risk that you’re pushed into a terrible loan for a slightly higher commission.
- If something goes wrong, you have avenues to complain – first to the broker (they often have a compliance manager to handle issues) and then to AFCA if needed.
- You have the right to ask questions and be informed. Don’t hesitate to ask, “Why this loan? What are you getting out of it? Can I see a comparison of a couple of options?” A conscientious broker will happily discuss these and may even provide a formal report or loan comparison summary.
- Brokers also have to give you a copy of their preliminary assessment if you ask. This is a document detailing why they believe the loan is not unsuitable for you, basically evidence of how they assessed your requirements).
The regulations were strengthened to ensure trust and confidence in brokers because, today, brokers play a crucial role in the home loan market. The government and regulators want to ensure that first-home buyers and all consumers get a fair deal whether they go through a broker or direct.
So, legally speaking, you can feel comfortable using a licensed mortgage broker. They have legal duties to you, and the way they earn their commissions is transparent and regulated.
Now, after covering facts and figures, let’s address some of the common myths and misconceptions about mortgage broker fees that still float around. It’s important to set these straight so you can confidently share accurate info next time someone says, “Don’t use a broker; it’ll cost you more” or “Brokers are always free, no matter what.”
Common Myths and Misconceptions About Mortgage Broker Fees
When it comes to mortgage brokers and how they get paid, a few myths persist. Let’s tackle the big ones head-on:
Myth 1: Mortgage brokers are always free.
Reality: Almost always, but not absolutely always. It’s true that, generally, you won’t pay a mortgage broker out of pocket in Australia – lenders pay them commissions, so you don’t have to. Many brokers advertise “our service is free for you.” However, this can lead people to assume that no broker ever charges a fee, which is not the case. As we discussed, some brokers do charge fees in certain circumstances. This could be a flat consultation fee, an upfront fee for a small loan, or a fee for a complex lending scenario. If a broker intends to charge you, they must tell you and get your agreement. There should be no surprise fees.
Myth 2: All brokers get paid the same way.
Reality: The predominant way brokers get paid is the same (upfront and trailing commissions from lenders), but there are variations in the details. It’s not true that every broker has identical compensation. For one, different lenders have slightly different commission rates. Also, broker firms have different business models: some are purely commission-based, some fee-for-service, and some are a mix. A minority might charge a client directly rather than taking lender commissions. Others might rebate part of their commission to the client as a competitive hook. From a consumer’s perspective, what’s important is to know that “brokers usually earn via lender commissions, but a few may charge fees or have unique models – so check your broker’s approach.
Myth 3: Using a broker costs more than going direct to a bank.
Reality: This is a persistent myth, perhaps stemming from the idea that “if there’s a middleman, it must be more expensive.” However, in the case of mortgage brokers, going through a broker generally does not cost you more – and can often cost you less – than going direct. When it comes to interest rates and fees, lenders do not penalise you for using a broker. As mentioned before, interest rates obtained via brokers are on par with those obtained directly. The broker’s commission is a marketing/distribution cost for the lender, and banks have found it worthwhile because brokers bring them lots of customers.
Myth 4: I could negotiate a better rate myself if I cut out the broker.
Reality: While it’s true you can try to haggle with a bank, brokers are professional negotiators who know the bottom-line rates lenders will go to. Many lenders have discretionary pricing (wiggle room), and brokers know how to request it. As a single customer, you might not always know if you’re truly getting the bank’s best offer or if they have another 0.1% they could give. A broker often knows when a rate can be pushed lower. Additionally, some smaller lenders only distribute through brokers – meaning you can’t even access them directly to get their low rates without a broker. So you could be leaving money on the table by not exploring those.
Finally, consider life-of-loan service: If your broker keeps an eye on your loan and helps you avoid loyalty tax (the phenomenon of banks not giving existing customers the best rates unless prompted), they can prompt a rate review or help you refinance when beneficial. That can save you lots over time, whereas if you stick loyally to your bank without checking, you might end up overpaying.
Myth 5: Brokers only recommend loans that are in their interest, not the borrower's.
Reality: This was a fear that led to regulatory changes. Now, by law, brokers must act in your best interest. Most brokers, even before the law, built their business on trust and long-term relationships, meaning they had to satisfy customers to get referrals. The commission model, when roughly equal across lenders, actually aligns the broker’s incentive with getting your loan approved and keeping you happy so you don’t refinance away. That usually means finding a competitive loan that you’ll stick with. While a broker could theoretically earn a bit more commission from one lender, if that loan is a bad deal for you, you’ll be an unhappy client and possibly refinance or not refer friends, which in the long run hurts the broker more.
Conclusion
Buying your first home in Australia is a big milestone, and it comes with many decisions – choosing the right home loan is one of the most important. Mortgage brokers can be your ally in this process, helping you navigate the sea of lenders and products. When it comes to fees and how brokers get paid, we’ve learned that:
- In most cases, you won’t pay the broker directly – lenders will pay them commissions for helping you secure the loan. This means you get expert help at no out-of-pocket cost.
- Brokers earn upfront commissions for arranging the loan and trailing commissions for ongoing service, but these commissions do not increase your interest rate or loan costs. They are relatively uniform across lenders and fully disclosed to you.
- There are different fee structures, but any broker-charged fees (if they exist) must be transparent. The vast majority of first-home buyers won’t encounter a broker fee, but it’s good to ask and know.
- Using a broker vs going direct is usually cost-neutral or cost-positive (saving you money). Brokers bring competition to your doorstep and often find loans with lower fees or negotiate better rates on your behalf.
- The industry is legally regulated to protect you – brokers have a best-interest duty, and you get disclosures about how they’re paid. There’s oversight to ensure commissions don’t conflict with your best outcome.
- Common worries like “brokers will push a more expensive loan” or “brokers are hiding fees” are largely unfounded today. With so many Australians choosing brokers, their trust is well-placed.
As a first-home buyer: Don’t be afraid to use a mortgage broker. Ask them questions about their fees and commissions – any good broker will be happy to explain exactly how they get paid and reassure you that their goal is to get you the best deal because happy clients are their lifeblood. You should feel comfortable and informed every step of the way. And remember, you’re in the driver’s seat. If a broker ever suggests something that doesn’t feel right, you can walk away – but chances are, you’ll find their input invaluable.
At the end of the day, what matters is securing a home loan that fits your needs and budget. Whether you achieve that through a broker or on your own, knowledge is power. You now understand how broker fees work, so you can approach discussions with confidence. Many first-home buyers in Australia have successfully bought their homes with the help of brokers, enjoying a smoother process and great loan deals.
Next Steps And Getting Your Home Loan
Our team at Hunter Galloway is here to help you buy a home in Australia. Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to helping make your home loan journey as simple as possible.
If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
Start again
