I think it’s simply common sense to assume that mortgage brokers earns a fair share from banks or other lenders to recommend their client with a mortgage loan. But how much?
Brokers typically receive up-front commissions of around 0.65 per cent of the entire loan amount, followed by a so-called “trail” commission of 0.20 per cent of the loan amount every year that the loan is in force. Some banks, such as NAB, even raise the trail commission to 0.35 per cent from the fourth year onwards to try to persuade brokers not to switch the customer to a better deal from another bank.
In other words, brokers are rewarded for doing absolutely nothing, while borrowers bear the brunt of the costs. In the UK and the US, trail commissions on mortgages are unheard of. That’s why consultations are mostly free as they will earn a lot more from your mortgage plan later on when you signed up with them. Why charge consultation when they can get a truckload of cash later on down the road, right?
Some banks are raising commissions to try to steal business from other banks – effectively, bribing brokers to recommend their products over their rivals. A senior executive at one bank said: “Competition is tight and margins are being squeezed, so banks need to try to pinch market share from each other. “In times like these, you see some banks cut profit margins to wafer-thin levels to attract business with their good rates – and others ramp up their commission payments to try to get more business.”
Although it would help bank profits if they didn’t have to pay mortgage brokers, the banks fear that they will lose too much of their business if they cut commission payments or stop them altogether – and with good reason.
Brokers currently account for around 40 per cent of banks’ mortgage business.
You should really consider getting a home loan from a credit union or building societies. Yes, they are smaller in size and you might not heard of them, but some of them have really good rates.
It’s the same as in affiliate marketing. If you’re an affiliate marketer, you try to look for the high paying affiliate programs to offer (tips: finance, law, insurance etc) with high EPC and EPM. You test and drop unsuccessful campaigns and ride on with the top converting ones. Simply put, it’s just marketing tactics and strategy to get more business + money.