Broker fees and the best interests duty
Two questions decide whether to trust a mortgage broker: what will it cost me, and whose side is the law on? The answers are better than most borrowers expect. In most cases the broker costs you nothing, any fee must be quoted in writing and signed before work starts, and since 1 January 2021 the broker has owed you a statutory duty to act in your best interests that a bank's own staff do not. This guide covers the fees, the exceptions, what the duty obliges a broker to do on your file, and how to check and enforce it.
- Most brokers charge the borrower nothing; the lender pays commission. Mozo cites ASIC data that about 85% of brokerages charge no upfront fee
- A broker who does charge must give you a written quote you sign before the work, and cannot request a fee otherwise (Moneysmart)
- Fees appear on commercial and business loans, very small loans, complex files, and sometimes loans paid out within two years (Home Loan Experts)
- The best interests duty (National Credit Act Part 3-5A, ASIC RG 273) requires the broker to act in your best interests and to put your interests first in a conflict
- Conflicted remuneration is banned: no volume or campaign bonuses; standard upfront and trail commission is permitted and must be disclosed in the credit guide
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees, or other loan amounts might result in a different comparison rate. Comparison rates are based on a secured loan of $30,000 over 5 years for vehicle finance and $50,000 over 5 years for equipment finance, as required under the National Credit Code.
What does a mortgage broker cost you?
Usually nothing. Moneysmart puts it plainly: lenders generally pay mortgage brokers a commission for distributing their products, so you do not pay them directly, and the commission is a percentage of the loan with an upfront and an ongoing part. Mozo cites ASIC data that around 85% of brokerage firms do not charge the borrower any upfront fee. The how brokers are paid guide has the rates. The loan itself costs the same as it would direct, because the lender pays the broker from its margin, and the ACCC's home loan price inquiry found broker customers generally received equal or better pricing.
When a broker does charge a fee
| Situation | Why a fee appears | What to check | Source |
|---|---|---|---|
| Commercial and business loans | Lender commission is lower, capped or absent on some facilities, so the broker charges for the work | Whether the fee is fixed or a percentage, and whether it is refunded if the loan does not settle | Home Loan Experts; the business loan broker guide |
| Very small loans | Upfront commission on a small balance would not cover the hours | Compare with a fee-free broker or applying direct | Home Loan Experts |
| Complex files | Unusual income, security or structure needing extra work | What the fee covers and whether it is payable on decline | Home Loan Experts |
| Loans paid out within two years | The lender claws back the broker's upfront commission | Only lawful if a fee-for-service was disclosed in writing before work began; a "clawback recovery fee" added afterwards would likely breach the Act | Mozo; MFAA factsheet (brokers cannot recoup clawback from clients) |
| Fee-for-service brokers | A small number charge you and rebate or decline commission | The total against the commission model over the loan's life | Everglow (fee-for-service guide) |
Whatever the reason, the process is the same. Moneysmart publishes that where a broker charges you directly they must set out the proposed fee in a written quote, that you must sign the quote before the broker can provide services and request payment, and that a broker is not entitled to request a fee otherwise. If you are unsure whether a fee is reasonable, Moneysmart's advice is to ask around or look online to see whether other brokers charge for similar services and what they charge.
What the best interests duty requires
Part 3-5A of the National Consumer Credit Protection Act, in force since 1 January 2021, requires a mortgage broker to act in the best interests of the consumer when providing credit assistance and, where there is a conflict between the broker's interests and the consumer's, to give priority to the consumer's. ASIC's Regulatory Guide 273 explains what ASIC looks for when it assesses compliance and the steps a licensee can take to reduce the risk of breaching it. The MFAA translates it for borrowers: personalised recommendations that consider your situation, goals and preferences; clear explanations of why particular loans are suggested; balanced information to compare the benefits and drawbacks of each; a transparent process with full disclosure of how the recommendation was reached; and records showing how the advice meets the duty. Its member survey reports brokers present an average of three loan options and hold an average of 23 lender accreditations.
| Obligation | What it means on your file | What you should see |
|---|---|---|
| Act in your best interests | Understand your situation, needs and objectives before recommending; consider the products the broker can access and compare them; recommend the one that serves you, not the one that is easiest to settle | A fact-find, more than one option, and a written reason for the recommendation (Moneysmart: ask why this loan is in your best interests) |
| Conflict priority rule | Where the broker's pay or relationships conflict with your interests, yours win | The commission structure disclosed, and no unexplained preference for one lender |
| No conflicted remuneration | Volume-based and campaign-based commissions and soft-dollar benefits are banned; standard upfront and trail are permitted | The credit guide lists commissions by type and percentage, not bonuses tied to volume |
| Cost is important but not everything | A dearer loan can be in your best interests if its features or policy fit are what you need, with the reason recorded | An explanation of why a cheaper option was not chosen |
| Records | The broker must be able to show how the recommendation met the duty | A preliminary assessment and recommendation you can keep |
Emu Money's guide to the duty is candid about how it fails: commissions and volume bonuses that steer recommendations, narrow panels used without documenting why excluded lenders were unsuitable, unverified fact-finds, and recommendations made without evidence. Its point that disclosure alone does not manage a conflict is the one ASIC makes too, which is why the reforms banned the conflicted payments rather than merely requiring them to be declared.
Who the duty does not cover
Bank staff selling their own bank's loans. The MFAA's duty page states that banks and other lenders are not bound by it, and the MFAA factsheet makes the same contrast. A bank owes you responsible lending obligations, meaning it must not give you a loan that is unsuitable, but it has no obligation to find you the best one or to consider anyone else's. That asymmetry is the strongest argument in the broker versus bank comparison. The duty also applies only to credit assistance on consumer credit; a broker arranging a commercial loan is outside it, which is one reason commercial brokers more often charge a fee and why you should ask how a business loan broker is paid.
How to check a broker before you start
- Licence. Moneysmart: make sure they have a licence to give credit advice or are a representative of a licensee. The credit guide states the licence number; ASIC's professional registers confirm it.
- Credit guide. It must be given before credit assistance and sets out the lenders dealt with, how the broker is paid, any fees to you, and the complaints process.
- Questions. Moneysmart's script: How do you get paid for the advice you are giving me, and does it differ between lenders? Why did you recommend this loan and why is it in my best interests? What fees will I pay on the loan, and how do the fees and features affect its cost?
- Options. The broker should present more than one, explain each, and show lenders other than your preferred one so you can compare.
- If it goes wrong. Complain to the broker's business in writing; if unresolved, the Australian Financial Complaints Authority provides free, independent dispute resolution.
Your Finance Guide refers you to one licensed broker partner. Our credit guide discloses that the partner is paid upfront and trail commission by the lender, the ranges, and the referral fee it pays us from that commission, none of which changes the rate or fees you pay. We do not lend or recommend loans ourselves.
More on mortgage brokers
How they are paid, the broker-or-bank question, and our own disclosures.
Broker fees and duty FAQs
How much do most mortgage brokers charge?
Is it worth paying a mortgage broker?
What is the best interests duty for mortgage brokers?
Does a mortgage broker have a fiduciary duty?
Do mortgage brokers get you the best rate?
Can a mortgage broker get you a better interest rate?
What can I do if a broker breaches the duty?
What is in a broker’s credit guide?
A broker with the duty on your side
Our licensed broker partner owes you the best interests duty, discloses its pay in writing first, and charges you nothing on a standard home loan. Free for borrowers, no obligation.