Over 70% of Australian home loans are now arranged through mortgage brokers — and the service is free for borrowers. The lender pays the broker a commission for bringing them the loan. This creates a natural question: if the lender pays the broker, is the broker really working for you? The answer is nuanced. The Best Interests Duty (introduced in 2021) legally requires brokers to act in your best interests — but understanding how commissions work helps you ensure you are getting genuinely independent advice.
How Are Mortgage Broker Commissions Structured in Australia?
Mortgage brokers in Australia are typically paid two types of commission by the lender:
Upfront commission: A one-off payment when the loan settles, calculated as a percentage of the loan amount. The industry standard upfront commission is approximately 0.55–0.70% of the loan amount (including GST). On a $600,000 loan, the broker receives approximately $3,300–$4,200 at settlement.
Trail commission: An ongoing annual payment for the life of the loan, calculated as a percentage of the outstanding loan balance. The industry standard trail is approximately 0.15–0.20% per year. On a $600,000 loan, the broker receives approximately $900–$1,200 in the first year, gradually declining as the loan balance reduces.
Worked example — $600,000 loan over 30 years: Upfront commission (0.65%): $3,900. Trail commission (0.165%/year on declining balance): approximately $900/year in year one, declining to approximately $300/year by year 20. Total trail over 30 years: approximately $15,000–$18,000. Total broker income from one $600,000 loan: approximately $19,000–$22,000 over the life of the loan.
Important context: The broker does not keep all of this. Their aggregator (the company that provides the broker's license, technology, and lender access) typically takes 15–30% of the upfront commission and 15–20% of the trail. After aggregator fees, business expenses, compliance costs, and tax, the broker retains a smaller portion.
Does the borrower pay anything? In the vast majority of cases, no — the borrower pays nothing to the broker. Some brokers charge a fee for service (particularly for complex or specialist lending), but this is disclosed upfront and agreed before proceeding. If a broker charges a fee, the commission from the lender is typically reduced or credited to the borrower.
Brokers Are Free for Most Borrowers
The standard model is clear: the lender pays the broker, not you. You receive the same interest rate and loan terms whether you go directly to the lender or through a broker. In some cases, brokers can negotiate better rates than you would get walking into a branch — because the lender values the broker's volume and referral relationship.
| Commission Type | Rate | On $600K Loan | When Paid |
|---|---|---|---|
| Upfront | 0.55–0.70% of loan | $3,300–$4,200 | At settlement |
| Trail (Year 1) | 0.15–0.20% of balance | $900–$1,200 | Monthly ongoing |
| Trail (Year 10) | 0.15–0.20% of balance | $600–$800 | Monthly ongoing |
| Trail (Year 20) | 0.15–0.20% of balance | $300–$500 | Monthly ongoing |
The Best Interests Duty: How Australian Law Protects Borrowers
Since 1 January 2021, Australian mortgage brokers have been legally required to act in the 'best interests' of their clients under the Best Interests Duty (BID). This was introduced as a recommendation of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The BID requires brokers to:
Prioritise the borrower's interests: When recommending a loan product, the broker must prioritise the borrower's interests above their own — even if a different product would pay the broker a higher commission.
Consider a range of products: The broker must consider products from multiple lenders on their panel (typically 20–40+ lenders) and recommend the product that is in the borrower's best interests — not simply the cheapest rate, but considering the total package (rate, fees, features, flexibility, suitability).
Disclose conflicts of interest: The broker must disclose any conflicts — including that they receive commission from the lender, the approximate commission amount, and whether different lenders pay different commission rates.
Maintain records: The broker must document why they recommended a specific product — including which alternatives were considered and why the recommended product is in the borrower's best interests.
Potential conflicts and how to manage them:
Most lenders pay similar commission rates, which reduces the incentive to recommend one lender over another based on commission alone. However, slight differences exist — some lenders pay 0.60% upfront while others pay 0.70%. The BID makes it unlawful for a broker to recommend a higher-commission product if a lower-commission product is genuinely in the borrower's best interests.
Some lenders pay bonus commissions or volume bonuses to brokerages that reach certain loan volume thresholds. These bonuses can create subtle incentives that may not be obvious to the borrower. Under the BID, these arrangements must be managed and disclosed.
Your protection: If you believe your broker has not acted in your best interests, you can lodge a complaint with the Australian Financial Complaints Authority (AFCA) or report the broker to ASIC. Brokers found to have breached the BID face significant penalties.
Ask for the Priority Assessment Form
Under BID requirements, your broker should provide a document explaining why they recommended the specific loan product — including what alternatives were considered. Ask for this document. It demonstrates the broker's compliance with the Best Interests Duty and gives you confidence that the recommendation is genuinely in your interests.
Questions Every Borrower Should Ask Their Mortgage Broker
Transparency builds trust. Here are questions you should feel comfortable asking any broker:
1. How are you paid — commission only, fee for service, or both? Most brokers are commission-only — which means their service is free to you. If a broker charges a fee, understand what it covers and whether the commission is credited against it.
2. How many lenders are on your panel? A larger panel (30–40+ lenders) provides more options. A small panel (10–15) may limit your choices. Ask whether any major lenders are excluded from the panel.
3. Why are you recommending this specific product? The broker should be able to explain clearly why this product suits your needs — rate, features, flexibility, and total cost — and what alternatives were considered.
4. Do any lenders on your panel pay higher commissions than others? This is a direct conflict-of-interest question. A good broker will answer honestly and explain how they manage the conflict (by prioritising your interests under the BID).
5. What happens if I refinance in the future — do you lose your trail commission? Yes — if you refinance to a different lender through a different broker, the original broker loses their trail commission. This can create a subtle incentive for your broker to discourage refinancing. A good broker will proactively suggest refinancing when it is in your best interests — because maintaining trust leads to long-term referrals.
6. Are you a member of the FBAA or another industry body? Membership in the Finance Brokers Association of Australia (FBAA) indicates the broker adheres to a professional code of conduct and ongoing education requirements.
7. What is your experience with my type of loan? If you are self-employed, buying through an SMSF, or an expat borrower, ensure your broker has specific experience in that area — not all brokers handle specialist lending.
8. Will you help me after settlement — with rate reviews, refinancing, and ongoing advice? The trail commission is designed to incentivise ongoing service. A good broker will proactively contact you annually to review your rate and ensure you are still on a competitive product.
- ✓How are you paid — commission, fee, or both?
- ✓How many lenders are on your panel?
- ✓Why are you recommending this specific product over alternatives?
- ✓Do different lenders pay you different commission rates?
- ✓Will you proactively review my rate each year after settlement?
- ✓Are you a member of the FBAA?
- ✓What experience do you have with my specific situation?
- ✓Can I see the priority assessment or comparison document?
Frequently Asked Questions
About the Author
Sakib Manzoor
Senior Finance Wellness Expert
Sakib Manzoor is the founder of Secure Finance and brings extensive experience in Australian mortgage broking and financial wellness. Specialising in helping clients achieve their property finance goals through personalised strategies and expert guidance, Sakib is FBAA accredited and committed to providing clear, actionable advice. All content is written to meet Australian regulatory standards and is regularly updated to reflect current market conditions.