Mortgage Broker Trail Commission: What It Is and How It Works

A mortgage broker trail commission is a type of commission paid to mortgage brokers by lenders, every month for the entire tenure of a home loan. 

If you’re in the market to get a new home loan and you’re considering using a mortgage broker, understanding how they are compensated will help you navigate the market with caution.

Let’s dive into everything you need to know about a mortgage broker’s trail commission.

How Do Mortgage Brokers Make Money?

Good brokers often get paid a commission by their lending partners, whenever an affiliated loan product is sold through the broker.

This could either be:

• An upfront, one-time commission at loan settlement.

  • As a standard benchmark, most lenders currently pay around 0.65% (including GST) of the drawn-down loan amount.

  • The commissions are clawed back (fully or partially repaid by the broker back to the lender) if the borrower refinances or closes the loan early—typically within the first 12–24 months.

• A trail commission, where the broker is paid every month for the entire tenure of the home loan.

  • A commission rate of about 0.165% p.a. (including GST) of the outstanding loan balance is the standard benchmark here.

• A mix of both.

However, there are also brokers in Australia who may charge a fee from you, instead of, or as well as, the lender's commission.

A good, reputed, established broker would offer their services fully free to the borrower. 

For instance, Koalify operates completely free of charge to borrowers. You can avail our unbiased, expert guidance to find your perfect home loan totally free!

So make sure to ask your mortgage broker to clarify the associated costs of getting a home loan through them.

What Is a Mortgage Broker Trail Commission?

A trail commission is an ongoing fee paid by the lender to the mortgage broker, applicable to selling any affiliated loan product of the lending partner,  paid to the broker monthly or quarterly for the entire duration of the loan.

It is calculated as a small percentage of the outstanding loan balance, with a commission rate of about 0.165% p.a. (including GST) considered as the standard benchmark.

How It’s Calculated and Paid

Trail commission is typically paid monthly or quarterly from the lender to the broker for as long as the borrower keeps that loan. 

If you pay off or refinance the loan, the trail commission stops​.

Plus, the commission is calculated based on the outstanding loan balance. That means each year the principal gets lower, so does the broker’s commission.

Why It’s Called a “Trail”

It essentially trails behind a loan; as the borrower pays down the mortgage, the commission amount falls in line.

Why Do Mortgage Broker Trail Commissions Exist?

A mortgage broker’s trail commission is considered the sweet spot of incentivising a broker for their service, which benefits all parties involved - the broker, the lender, and the borrower.

Here’s how…

Incentivises Service

Trail commissions reward brokers for ongoing service. Brokers often help borrowers long after settlement – by arranging loan top-ups, switching rates, or refinancing advice. 

The trail fee encourages brokers to stay involved and keep borrowers satisfied with their loan​.

Steady Income Stream for Brokers

Instead of getting all paid at once, the trail provides a continuous income for the broker. 

This can balance out fluctuations (for example, if they do fewer loans in a year) and help them cover ongoing costs. A broker might accept a lower upfront commission in exchange for the promise of steady trail payments.

Alignment of Interests

In theory, because the broker only continues earning if you keep the loan, they are motivated to help you stay with a loan that suits you.

This reduces the chance of brokers acting in a biased/unfair/unfaithful manner, where they potentially push you to any loan even if it doesn’t suit you.

In other words, with a trail commission, brokers have a financial reason to keep borrowers happy.

Why Is the Mortgage Broker Commission Rate Standardised?

• To ensure impartiality: If all lenders pay similar rates, brokers are less financially motivated to favour one lender over another.

• To comply with Best Interests Duty (BID): Brokers must recommend the most suitable product for the client, not the one that pays the highest commission.

• Lender Aggregator Agreements: Broker aggregators negotiate agreements with lenders setting these commission rates across the board.

• Royal Commission Recommendations: Although it stopped short of banning commissions, it heavily pressured the industry to maintain transparency and standardise commission practices.

Understanding Who Pays the Commission

You do not pay the broker’s commission from your pocket. The bank or lender pays both the upfront and trail fees as part of its cost of doing business. 

This is why most brokers offer their service “for free” to home buyers – their pay comes from the lender.

Since the commissions come out of the lender’s margin, you shouldn’t be charged a higher interest rate because of it. If a broker does charge you a fee instead (some do in special cases), they must make that very clear ahead of time.

Make sure to do your due diligence by asking about any such fees with your broker upfront.

Why This Matters for Home Buyers

Transparency and Trust

Knowing about trail commissions helps you ask smart questions. 

For example, you can ask your broker “How much am I paying you on this loan?” or “Which loan earns you the most commission?” 

Legally, brokers are required to honestly answer these kinds of sensitive questions. 

If your broker’s suggestion seems unusually tilted toward a particular lender, you can check with the broker itself to see if the commission is higher there. (However, remember that legitimate factors like loan features also drive recommendations.)

You can ask these 14 key questions to make sure you’re approaching the right mortgage broker.

Best Interests Duty

ASIC’s Best Interests Duty (BID) mandates all mortgage brokers in Australia to act in the borrower’s best interests, not just chase the highest pay.

This means even though they earn commissions, brokers are obliged to help you find a suitable loan. They can’t just pick the lender that pays the biggest fee – it’s illegal for them to do so under the current Best Interests Duty law.

Note that the Best Interests Duty applies to mortgage brokers and their credit representatives only, and not to bank staff dealing directly with you.

No Cost to You

Since you’re not liable to pay these fees, trail commissions don’t make your mortgage payments higher. 

However, they can influence a broker’s motivation. 

So, as a borrower, always keep this in mind and ask the broker about alternatives.

Frequently Asked Questions (FAQs)

Do I ever pay the broker directly for trail commissions?

No. Trail commission is always paid by the lender out of their funds. You won’t see an extra charge on your loan statement for the broker’s trail fee.

If I refinance or repay my loan early, does that increase my costs?

Not directly. 

If you refinance or pay off, the trail commission simply stops (the broker just stops earning it)​. You are not affected by it in any way.

Could a lender charge me more interest because of these commissions?

Lenders build commissions into their overall cost structure. But thanks to disclosure rules, there’s no secret surcharge for using a broker. 

You should compare the loan’s advertised interest rate and fees directly. 

The existence of a trail commission does not automatically make your rate higher – brokers bring competition to lenders, which often helps keep rates lower overall.

How can I check what my broker is earning on my loan?

Good brokers will tell you. 

Under ASIC rules, brokers must disclose the rates of any commissions when asked by the borrower.

You can look at your Credit Proposal or Remuneration Disclosure Document as well. 

If unsure, simply ask: “What commissions will you receive on my loan?” A transparent broker will give you the numbers.

Keep in mind that this article contains general information only and has not taken your personal objectives, financial situation, or needs into account. Consider whether it is appropriate for you and seek independent advice before acting.

Compare rates from multiple lenders

Let our home loan experts secure the most suitable deal for you

I want to refinanceI want to buy a home