What is a mortgage broker's commission (trail and upfront)?
Mortgage broker commissions consist of upfront payments (lump sum at loan settlement) and trail commissions (ongoing percentage of loan balance), paid by lenders rather than borrowers, and are disclosed under the broker's best interests duty.
Mortgage brokers in Perth are paid by lenders through two commission types rather than charging borrowers direct fees. An upfront commission is a lump sum payment made at or near loan settlement, typically calculated as a percentage of the loan amount. Trail commission is an ongoing payment, usually expressed as a percentage of the loan balance, paid annually or monthly for as long as the loan remains with that lender.
Because commissions come from the lender, borrowers generally incur no direct cost for broker services. However, commissions are built into the lender's pricing and loan terms. Under the National Consumer Credit Protection Act, brokers must disclose their commission arrangements and act in the best interests of the borrower, which includes considering whether the recommended loan represents suitable value given the broker's remuneration.
The structure of commissions can create incentives: upfront commissions reward brokers for completing new loans quickly, while trail commissions reward long-term customer retention. Some mortgage brokers may also receive additional commissions or bonuses from lenders for meeting volume targets or promoting specific products. Understanding these arrangements helps borrowers assess whether their broker's recommendations align with their own financial needs rather than commission bias.