The benefits of using a mortgage broker to source and arrange your finance can far outweigh the alternative of doing all legwork yourself. A good mortgage broker can be worth their weight in gold and provide valuable expertise, so why do some mortgage brokers charge a fee and others don’t?
There are two types of mortgage brokers;
- Mortgage brokers who don’t charge a fee to the customer as they are paid by the lender on settlement
- Mortgage brokers who charge a fee to the customer and are paid by the lender on settlement
Mortgage brokers who charge a fee to the customer refer to the fee as a ‘mandate’. They are required to notify the customer in writing that they charge a fee for their service. This practice can be seen as ‘double dipping’ as they are essentially paid twice for the service, once from the customer and from the lender, if the loan goes through to settlement. Mortgage brokers in competitive areas such as Sydney often mandate their clients to ensure they receive income for their work, even if the loan doesn’t finalise or settle.
Mortgage brokers who don’t charge a fee to the customer do so because they are paid commission by the lender once the loan settles. This means they often provide their services without any guarantee that they will generate any income. Generally, mortgage brokers who have more experience are comfortable with not charging a fee because they will often have better success in taking a loan through from application to settlement.
Why do some mortgage brokers charge a fee?
Mortgage brokers who are new to the industry and/or have less experience may feel the need to charge an upfront fee or ‘mandate’ for their service to gain commitment from the client, in case they spend time on the customer’s application but it never eventuates into a settlement.
They may have experienced a lot of ‘tyre kickers’ and found that they were spending more time fielding enquiries and not settling many loans. To mitigate this, they charge a fee at the point of engagement to satisfy their operating costs. This could be in the form of a percentage of the loan amount or a flat fee which may or may not be refunded on settlement.
Generally, if a mortgage broker is confident in their ability and expertise, they will have more success in taking a loan through to settlement and won’t charge a fee for their services.
How do mortgage brokers who don’t charge a fee get paid?
Similar to other service providers like recruitment agencies or real estate agents, most mortgage brokers don’t receive any payment unless they are successful. Without a fee for service, most mortgage brokers receive a payment from the lender once the loan settles. This can be in the form of an up-front payment and/or a ‘trail’ payment. Up-front payments are calculated on the total loan amount and paid once. Often the lender will recall or ‘claw back’ the payment from the mortgage broker if the loan is discharged within a short period of time.
Some lenders will also pay ‘trail’, a small monthly payment for the life of the loan, however this component isn’t offered on all loan products. Some lenders don’t pay trail at all or if they do, it must be over a certain loan amount.
We at Mint Equity will never charge customers a fee for our services. We are confident in our expertise and understand that securing a home loan or finance for your SMSF or business has many variables that are out of a customer’s control. Therefore, we feel it is unethical to charge for a service when we will be remunerated by the lender once the loan is settled. Double dipping is not our style.
How do I know if my mortgage broker charges a fee?
Your mortgage broker is required by law to tell you if they charge a fee. They must provide a written detailed summary of their mandate. However, it’s always best to ask if there are any fees associated with their services.
We don’t charge for our services and we never will, here’s why.
One of the joys of being a mortgage broker is seeing people realise their dreams. It sounds corny, but most people dream of owning their own home, so helping them find the finance to do it, is very humbling. If we were to only offer our service to those who could afford to pay for it, we would reduce the number of people we could help. We’ve built our expertise over 20 years in the banking and finance industry across Sydney and the Central Coast. It’s that experience that gives us a high success rate.