Is Commission A Dirty Word?

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Is Commission A Dirty Word?

We all know there is one ‘c’ word you should never say but what about ‘commission’, is it a dirty word? The word commission is usually associated with negative connotations, it can make consumers cringe quicker than your kids can say “stop commenting on my facebook photos, dad”, and this is true in the broker industry as well. People seem to think that mortgage brokers will only set a loan that they have a vested interest in. But this is not the case in the slightest.

How does commission actually work?

Brokers lodge applications to a lender and if it settles they receive a referral fee in the form of commision.

This application is composed of two parts the “upfront” which includes commission for lodging and processing and settling a loan and the “trail” which is an ongoing payment coming from a percentage of the loans monthly repayments.

Upfront commision rates vary from about 0.55%-0.77% of the settled loan amount, from lender to lender. So it is logical to assume that a broker would set the loan with the lender that gives the higher commision rate, right? Wrong.

Most of the time it comes down to bank policy. For example certain lenders will not accept certain applications, so brokers would not be able to pick the lender with the highest return if their customers loan won’t be approved.

Every clients scenario is different and this usually precipitates what loan the mortgage broker will choose, because if brokers don’t keep their clients happy they aren’t going to have any means of making commission anyway.

Brokers therefore must find loans that fulfill clients needs, and after eliminating the lenders whose policies do not align with what the client wants, the next step is seeing which lender is offering the most competitive rate. Because at the end of the day, that’s what clients are usually most worried about.

Oh and did I forget to mention that clients make the final decision? Brokers are simply there to guide the client towards finding a suitable loan for them, the decision at the end of the day is totally up to the client, so it can be difficult for a broker to sway their client towards the loan that will give the broker most commission.

We think it is important for potential buyers to understand that commission isn’t necessarily a dirty word, it’s simply a payment for a service, just like the wage or salary you receive. Our clients can trust that Alchemy Finance brokers are always driven by the goals of their clients, not by the amount of commission they will receive.

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