How do mortgage brokers make money?

Mortgage brokers don’t charge a fee for their service helping thousands of borrowers getting their finance approved. There are no extra costs for getting a mortgage directly from a lender or going through a mortgage broker, many people wonder how they make money. The answer is brokers are paid by the lenders for introducing home loan applications and for doing some of the work that would otherwise be done by the home home managers. They earn an income from the commission they receive from the lender, and there should be no reason for asking customers to pay extra costs. In most cases, mortgage brokers are paid an upfront commission and a trailing commission for the business they bring to the bank once the home loan is settled. The commission varies from lender to lender, but on average, lenders pay around 0.65% upfront commission on the loan amount settled, and 0.15% trail commission every year on the balance of the loan. If you run the numbers, that is a lot of money. But not all these commission payments would go into mortgage brokers’ pocket. Most mortgage brokers would operate under the broker group known as an aggregator, such as Aussie Home Loans, Mortgage Choice, and Yellow Brick Road, just to name a few. The aggregators take care with various legislative and compliance requirements, and they take a cut of the upfront and trail commissions up to 50%. The remaining would split between the business owner and the staff brokers depending on their agreement. Some people might wonder why banks or lenders pay so much money to mortgage brokers for introducing the business when they have their own branch networks and have an army of home loan specialists. From a bank's perspective, they need to grow or maintain their home loan market share in a competitive environment. To keep growing their loan book, they can either compete on rates or grow their distribution channels. Well, operating a large branch network is very expensive, and even having an army of mobile lenders it’s still not able to cover all suburbs in Australia. Banks therefore partner with mortgage brokers to expand their market coverage and distribute their products. Instead of paying a fixed salary with performance bonus to the lending staff, they pay a commission to the mortgage broker for doing the work.