If you were to ask anyone in the industry how much does a mortgage broker earn you would most likely get very mixed results.
The truth is that many mortgage brokers don’t earn a fixed salary at all; instead, they are remunerated through commissions on the loans they write. For example, if you are employed by a broker firm or business, there is a higher chance that you may earn a salary, but this salary tends to be modest. The average base mortgage broker salary was approximately $54,000 when ASIC reviewed the industry in 2017 – keeping in mind that this figure does not include the earned commissions that employed loan writers also earn alongside their mortgage broker salary.
On the other hand, becoming a mortgage broker that operates as an independent contractor may not earn you a salary, but the upside of this is that growing a significant loan book that you own, can earn you much more over the long term than what you could expect to earn as an employee.
But how much does the average mortgage broker earn, in total? The good news is mortgage brokers make significantly more than the national average – and with the housing market going through a period of significant growth, earnings have also continued to rise. So if a mortgage broker salary is rare, how do mortgage brokers earn so much?
In a word: commissions.
The value of commissions to a mortgage broker
There are two types of commissions that brokers earn when they write a loan. The first is an upfront commission. This is paid by the bank or lender when a client takes out a loan with said lender. However, if the client refinances within the first two years, banks tend to require brokers to refund the commission.
The second type of commission is known as a ‘trail commission’. This is also paid by the lender. But instead of a one-off fee, brokers earn a yearly commission from lenders when the borrower pays on time and stays with the lender. The amount earned is a percentage of the remaining balance of the loan, and therefore the trail commission gets smaller as the borrower pays off the loan. For those learning how to be a mortgage broker in Australia, it’s important to know that the trail can make up a substantial amount of recurring revenue over time and should therefore constitute an integral part of your business strategy.
How much commission does a mortgage broker get?
The trail commission tends to be 0.05% to 0.15% of the remaining loan balance, paid per year, not including Year 0 (when the loan is initially written). For example, if you had written a $500,000 loan with a lender that delivers a 0.15% trail commission, your earnings could look like this:
- Year 1: $691
- Year 2: $577
- Year 3: $481
- Year 4: $401
But how much does a mortgage broker earn through upfront commissions? ASIC reported that brokers were paid an average of 0.54% of the loan that they had written. That means that if a broker writes a $500,000 loan, they receive a $2,700 commission.
However, it should be noted that most of the time, banks and other lenders actually pay out between much less when their loan products are sold by a third party. So what explains the difference between what the banks pay out, and what the mortgage broker receives? The answer is an intermediary known as a mortgage aggregator.
If you’re learning how to become a broker, it’s important to understand the role of an aggregator, one of the key parties in the mortgage broking business. Good aggregators can provide you with tremendous value as a mortgage broker, so while they may be taking some of your margin, what they offer in return can significantly improve your mortgage broker salary.