February 08, 2019 by Annette Kennedy
This is a common question in my office and one I am very happy to discuss, anytime.
When a Mortgage Choice broker settles a home loan for a customer, the lender pays Mortgage Choice head office a commission and they pass a percentage of that commission on to me. I am paid the same no matter which lender you choose and there are no bonuses or incentives to go with one lender over another; this is the Mortgage Choice model. My commission for each loan is broken into two parts (i) An upfront commission at time of settlement and (ii) Trail commission paid over the life of the loan.
This is all disclosed to my clients at the time of application.
If at any point your loan goes into arrears or you refinance the loan, I don't receive the rest of the trail commission. Trail commission is a safety net for the banks, and for our clients ensuring I put you in the best loan to suit your needs and that you can afford from the outset.
Of course, if your situation changes along the way and it makes sense for you to refinance then I will help you do that. My first priority is ensuring you are in the best loan to suit your needs.
What I do every year is offer a home loan health check at no cost to my clients, to earn the trail commission I receive by ensuring you have the right loan product for your current circumstances.
In the early days of the broker industry a larger, upfront commission was paid and there was no trail. But as the industry evolved, the payment structure was more closely aligned with what is best for the client. That is, part of the broker's income was directly linked to whether the client kept their loan - hence the incentive to ensure the loan offered was the most suitable and that there was an ongoing review process to ensure the loan remained competitive.
I would like to share three examples from this week's home loan reviews.
All loans have been with their bank for between 2 and 8 years. We went back to their bank on their behalf seeking a better rate as the rates they were on were no longer competitive in the market. We presented examples of other offers and, without the need to change lenders, or to incur any costs, were able to secure additional discounts of:
- 0.62% on a 174k loan (saving $1,075 in interest per year),
- 0.34% on a 330k loan (saving $1,120 interest per year)
- 1% on a 360k loan (saving $3,600 interest per year).
This didn't cost the client anything and I didn't receive any upfront - but it is why I receive a trail commission.
I am confident and comfortable talking to banks and other lending institutions and have the knowledge of the market to present your case.
My trail commission allows my business to keep reviewing clients and ensuring their current loan suits their current needs but also is part of the agreed commission for the work completed when the loan was initially taken out. The method of payment is a little different to most other industries.
Think of it this way, part of a bank's cost is to have the overhead of a branch network. They pay rent and staff to service customers. Paying trail to brokers is just one of these costs. If brokers weren't servicing their customers in offices around the country, the banks would need more branches and more staff - or their customers wouldn't be getting the same level of service they receive today. Trail is a normal cost of doing business for a bank, not an extra cost.
The broking industry, and the service it provides and competition is creates, would not be viable if the only remuneration was the the upfront commission at its current rate.
Reviewing the Royal Commissions recommendations and what they will mean to the Mortgage Broking industry as a whole has added to a very busy week. But please know, it is business as usual.
Assisting clients with their home finance and trying to keep the lenders competitive is my royal commission, and something I am passionate about.
The broker industry has increased competitiveness in interest rates and types of products and allowed smaller lenders and interstate lenders to be an option for all. Having a service that is at no cost to my clients allows everyone in any circumstance to come in for a chat and learn how they may reach the great Australian dream.
I will continue to put my client first and am happy to share my knowledge.
