Mortgage Brokers receive a commission, in the form of a once-off upfront fee from the lender chosen, which is worked out as a percentage of the loan amount. This does not come out of the borrower’s mortgage.
The commission is paid by the lender to the aggregator (or Australian Credit Licence holder), and then paid to the Mortgage Broker after aggregation costs and fees have been taken out. They may also receive an ongoing trailing commission as payment for continuing to assist with their client’s ongoing home or investment loan administration requirements.
If the mortgage is discharged in up to 24 months, then clawback fees are charged to the mortgage broker by banks/lenders and they have no option but to charge these fees, because no business can pay a commission to a mortgage broker and then have the mortgage discharged and not charge a clawback.
It costs the lender a considerable amount of money to put a loan on its books and if a borrower has used a lender for a short term and then discharges a loan again in the first 24 months after settlement, the lender has in fact lost money. Whilst the borrower has benefited from the loan, both the broker and the funder have lost money.
Some brokers have opted to pass clawback fees onto clients themselves and Gadens Lawyers says getting a clawback from the borrower isn’t illegal so long as the mortgage broker offers a quote that complies with all the rules before they provide credit assistance. The quote has to be signed by the borrower and it has to be done before the mortgage broker provides credit assistance.
The clawback of commissions is there because the banks can no longer charge a deferred establishment fee.
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