If IO Loan 100% offset does that affect Broker commission

If I take out an IO loan and have the full amount offset (pay no interest) in the offset account will that affect the commission for the broker?

What is the industry norm for commission on a 1 million dollar loan nowadays anyway?

 

Commissions are paid on the balance owing, net of offset and redraw. Thus if the loan is fully offset at settlement, it means $0 upfront commission and $0 trail commission. So in the scenario you've outlined, the broker doesn't get paid.

Generally commissions are 0.6% upfront and 0.15% trail (plus GST). There is also usually a clawback period of 1 - 2 years. If the loan is closed (for any reason) during that period, the broker will likely have to pay back all or part of their commission.

I'm trying to think of any other industry that may not get paid based on the actions of the client after there service provider has completed the service...

 

They get $0

If you eventually spend the money they might get something.

Cheers

Jamie

 

What about money is put into offset few days after the settlement?

 

Different lenders have different dates at which they calculate these things but it could work if you get the timing right.

 

Most actually measure the offset between 1 - 3 weeks after settlement.

They generally review it after 12 months, so there is the possibility of getting paid later. This came in about a year ago, it was part of the many reviews that were done at the same time as the Royal Commission.

 

Related, and it could have been answered in other threads, but what is generally the minimum loan amount to make a transaction worth a broker's time?

 

I asked this on another thread.

Responses I got was depends on the broker, but $200k would generally interest most.

 

About $200k might be a break even from the upfront commission to recover the costs a broker incurs. Given the ever increasing verification, I can see an argument for that becoming $300k or more though.

That said, most brokers write plenty of loans that are much smaller and don't really think twice about it. I'm also writing a loan of almost $2M at the moment and the workload is roughly the same. I just see it as good kama all round.

 

Kind sir,

Can you please elaborate what costs that would include?

 

Time. Effort. Admin staff, Valuations, Aggregator fees, travel, postag, phone calls ......Share of business costs such as rent etc.

I dont know a single broker that wants to perform community service and help write deals and share and assist their knowledge & skills for no income. Even the one working for Westpac driving about in a VW beetle. Its a KPI killer.

I would argue:

Take total actual revenue for the year upfront (not trail) and divide by 1.1 so its GST exclusive. Then divide that value by the total hours spend working during the year (BOTH paid and unpaid outcomes) and then multiply by the total time which you dont get paid for. Lets say that 20% of your time ....This is the sunk cost of you performing community service and the lost income value of unpaid time. Its going to be a higher figure than actual direct and indirect costs.

 

Licensing and compliance. The costs around these activities have significantly increased over the last few years. A few weeks ago my aggregation told me I must sign up for a compliance service...

I can name dozens of things which you can spend small amounts of money on, on a regular basis. Various forms of software is a big one. Individually not much, but taken in aggregate it's not hard to find $50k or more disappearing on the small stuff that you wouldn't even thing of.

 

Depends on the lender - they all have different rules. Of all the changes made to brokers this one sucks the most - we either have to charge the client upfront, or look dodgy AF telling clients to keep their funds out of offset for 'x' amount of days so we don't have to charge. No one really wins - except the bank, of course