Mortgage Broker Fees, Charges and Clawbacks
Interested in using a mortgage broker? You are not alone! They provide excellent value to those who do not have the time to research or build the relationship with banks to learn the ins and outs of the Australian financial system. However, what fees are charged? How do mortgage brokers make money?
Did you know fees aren’t always advertised on a mortgage broker’s website?
Do mortgage brokers charge a fee?
Many mortgage brokers do not charge an upfront fee. They are able to do this because they earn a commission from a lender when they successfully help you complete and settle a loan application with them.
This commission that the lender pays the broker does not impact you in any way and it is how most mortgage brokers will get paid.
Some mortgage brokers, however, will charge a fee for different types of services and only tell you once you’ve done an initial email or call. We will break down some of the common ones we have seen that you need to be aware of.
Reservoir Finance aims to have the lowest fees as we aim to partner with our customers on their financial journey. You will find that we do not charge many of these fees that our competitors charge. In fact, we have charged fees to less than 1% of our clients!
What types of fees do mortgage brokers charge?
To protect their businesses from tyre kickers and ensure that mortgage brokers can pay staff, there are a number of different types of fees a mortgage broker will consider charging. Note these are NOT fees that banks charge. Below are the six most common fees we have seen from our competitors:
The commitment fee is generally charged by a mortgage broker upfront but refundable at settlement. This fee may vary from $600 to $1000 (plus GST) depending on brokers.
There are occasions that a home purchase may spend a few years to finally lock in a property. But in these years, they may do home loan pre-approval a few times to keep themselves in readiness. As brokers may only receive commissions after settlement, the broker will not be able to receive any income for any amount of successful pre-approval applications.
In other cases, a mortgage broker may use their extensive expertise to provide a sound strategy for a client’s financial situation. However, it may happen that due to various reasons, the client decides to go with any mortgage broker with all strategies given by the previous broker. To avoid receiving no income for valuable consultation, it is understandable that some brokers will charge a commitment fee to start with.
Reservoir Finance does not charge any commitment fee. We have faith in our services and confidence in our clients. As we are aiming for being a long term financial partner for many Australians, we commit ourselves to charge no commitment fee.
The administration fee that a mortgage broker may charge is generally an upfront once off fee ranging from $50 to $200 (including GST). This fee is used to cover any upfront time and costs that a mortgage broker needs to incur in order to provide you with recommendations.
Typically, what happens is after an initial conversation with a mortgage broker, they will send a fact finding document to assess your financial situation. This then enables them to provide loan recommendations (upon your instruction) based on your personal situation and goals. The administrative fee generally covers the time spent here and any potential (small) fees incurred by the mortgage brokers.
The amount of this fee varies between mortgage brokers and is influenced by the time it takes for them to perform these assessments and the type of customers a mortgage broker will serve. If they receive a lot of tyre kickers, then this fee is sometimes introduced to prevent that.
Some mortgage brokers will also refund this fee upon settlement of a loan, where the fee functions similarly to the commitment fee.
Reservoir Finance does not charge any administrative fee whatsoever.
Small Loan Fee
A Small Loan Fee may be charged by mortgage brokers when the loan amount that you are applying for is under a certain amount (Reservoir Finance have written many loans under $100,000). This fee varies from $500 to $1000 (plus GST).
This is because the time taken to provide advice and prepare for a loan application could be very similar in many situations. For example, it might be more time consuming to do a $100,000 top up from an existing loan than a straightforward $1,000,000 new purchase home loan. Given that mortgage brokers are paid on a percentage commission, the $1,000,000 loan is generally more worthwhile. So some mortgage brokers will charge a small loan fee to compensate for their efforts.
At Reservoir Finance, the lowest record commission we received was $1.87. However, we are committed to provide fee-free services to clients with all financial goals with no discrimination regarding loan sizes.
Complex Loans Fee
A complex loan service fee is charged by some mortgage brokers for individuals (or businesses) whose circumstances may require more time, research or effort to provide advice and prepare the loan application. This fee varies from $1000 to $3000 (plus GST).
This generally will not apply to most Australians looking for a loan to buy a home or one or two investment properties. It gets tricky when different entities such as corporate trustees, businesses with multiple entities are involved.
Reservoir Finance charges a complex loan fee for borrowers on a case-by-case basis. Less than 1% of our clients were charged this fee!
The commission clawback fee will be charged by many brokers and it is charged when a borrower either refinances or repays a loan in its entirety within two years of settlement. The clawback fee usually will be applied as a percentage of the loan amount and therefore depending on the size of the loan and sometimes does not include GST!
This is primarily influenced by the lender’s commission structure as mortgage brokers’ upfront commission will be clawbacked partially or wholly if discharge happens within two years after settlement.
The good news for borrowers is that applying clawbacks to borrowers has been essentially banned by Hayne Royal Commission. Be aware of those who still want to apply clawbacks to you; they may have broken the law.
Reservoir Finance never charges a commission clawback fee as we appreciate the borrowers decision and understand sometimes discharging a loan is in the borrowers’ best interest.
A cancellation fee may be charged by mortgage brokers for borrowers who apply for a loan, receive pre-approval or conditional approval, but choose not to proceed. The amount ranges from $1000 to the full commission fee.
Some mortgage brokers will treat a pre-approval or conditional approval as revenue for their business, this is due to the fact that sometimes, settlement periods can be extended for months. If a borrower decides to not proceed, the mortgage broker loses potential revenue.
This fee covers reasonable time spent to help borrowers receive pre-approval for a loan, but watch out that some brokers may charge an even larger amount as they treat it as clawback commission!
In other words, you need to be very sure you want to proceed with a loan application and not receive pre-approval for the sake of it.
At Reservoir Finance, we never and will not charge a cancellation fee.
How do I get an understanding of these fees?
All mortgage brokers are required to provide you with a Credit Guide or a Credit Quote which outlines all the fees that may be applicable prior to providing a service to you. They will typically ask you to sign this document, acknowledging that fees may be charged.
Don’t be afraid to ask a mortgage broker to be upfront with all their fees. Some of these fees are negotiable within reason (especially if you are a repeat customer). Ask if you have any questions at all about the fees. A lot of the fees are intended to deter time wasters and ensure that a mortgage broking business has revenue to sustain the services they provide.
Want a mortgage broker with no upfront fees?
Reservoir Finance is a mortgage broker located in the Sydney CBD. We are 100% independent (not owned by a bank or a lender) and our values-based mortgage brokers will always put your needs over profit.
Our aim is to provide great value to our customers. We do not charge any upfront fees for our service and our initial assessment of your circumstances and goals is obligation free! We will only charge fees if the nature of the loan application is exceptionally complex, which accounts for less than 1% of applications where borrowers have extensive investment properties or complex financial strategies.
Speak with us today. We would love to help you achieve your financial goals.