Commision to Mortgage Brokers

interested to know one thing.
Once a loan is worked out by a mortgage broker, do they get a commision paid by the lender on regular basis throughout the period of loan or is it only a one-off thing.

 

Both - an upfront payment and a smaller monthly payment.

 

Hi Darrell, the commission will generally be disclosed upfront in a credit proposal document. There will be a up front payment plus ongoing trail paid by the bank. This will be subject to "clawback" - that is if you refinance within a period of say 18 months, the poor MB will have to pay back their commission. This sux, as they have done all the work. I must say in the years that I have been MB I have never had a clawback - fingers crossed.

Hope that helps.

Cheers Ivan

 

A lump sum commission is paid a month or two after settlement - we then get an ongoing trail commission which is paid monthly.

If you close down the loan within the first two years the lender usually takes back the upfront commission.

Cheers

Jamie

 

Thanks it is clear to me now. So if the borrower decides to switch loans but intends to use the same broker, will the broker take the same interest as he did during the initial loan.

 

If by switch loans you mean change banks then the broker may have to give back the original commission - the clawback mentioned by Redwood - so they may not be getting a double commission in this case.

 

As others have noted - brokers receive an upfront amount for the origination of the loan and then an ongoing amount for the maintenance/service of the loan. For the most part trail is fairly small - so the aggregate value of all the trails of various loans coming in and not all loans requiring service at any one time is the only way it's viable to continue speaking to clients post settlement without having to charge a fee for service.

If the loan is refinanced/paid out in the first 18-24 months the broker will be forced to pay a clawback (think of it as a fine) back to the lender, of up to 100% of the commission earned.

The upfront and ongoing trail doesn't affect your loan interest rate or costs - the same costs are provided if going direct to bank as they have to have staff provide the same service. There's argument as to whether it may be cheaper for banks to generate their loans via brokers than staff, but no definitive study has been released.

 

My first owner occupied home loan was worked through a mortgage broker. 2 years later I got an IP but did the loan direct with the bank without a mortgager broker's involvement.
1. is the initial loan mortgage broker updated about my second IP loan
2. will the mortgage broker's commission increase because of my second loan.

 

1. If the original loan was refinanced as part of the purchase of the IP then yes, the broker will know. If the IP loan is with a different lender then the broker won't know.
2. No. It's a separate loan and will have no impact on his commission. The exception is if the OO loan was refinanced by the IP bank (due to rate seduction or crossing of securities) in which case he will lose the trail on the OO loan.

 

Sexy broker talk eh....

 

It's a term I use when someone is 'seduced' strictly by the rate and doesn't consider anything else as part of a greater finance strategy.

 

emm hmp. Sure.

 

• The lender was the same for both loans
• The Equity of the Owner Occupied home was used to get the IP

How does this effect the initial mortgage broker?

 

Cross collateralised it seems.

Existing broker would be unlikely to know and their trails should be unaffected.

 

In that case, the broker wouldn't know. But as Terry has mentioned there is a high chance they have used the security from your OO residence in addition to the security from the new IP. This is generally not a good structure.

Is there any reason why you didn't go back to the broker for the IP?

 

There's any number of permutations here. Depending on the lender, how the loans are structured and how the applications are implemented, the broker might get an increase in trail commissions, it might stay the same or their commission might be eliminated entirely. The broker definitely wouldn't get any commission at all on the new loan.

It's unlikely that the broker would receive a clawback so it's unlikely that the broker would be asking the client to reimburse them under a clawback provision. Beyond that I don't really see why the borrower would care about the brokers commission as it has no effect on them.

 

Not really. I knew the broker well. But I thought there was no need for that. I must say here that I consider myself an ammeter in this context.

 

I think I would like to be a MB

 

me too. Mortgage brokers are racking it in I hear