What is trail income?
Australian lenders compensate mortgage brokers for introducing home loans by paying them a commission. This upfront commission is what we receive from the lender for assisting you in finding a suitable home loan.
Apart from the upfront commission, mortgage brokers also receive a trail commission, which is a deferred payment made by the lender over the life of the loan. The amount of trail commission we receive is based on the net balance of your loan. So, if you obtain a home loan through us, we will receive the upfront commission and then, for every month you remain in that loan, we will also receive a trail commission from the lender.
However, if you decide to leave the loan or default on your payments, or if the loan is paid off entirely, we will no longer receive trail commission.
In the case of refinancing into a new loan with a new lender, we will receive a new upfront commission, as well as an ongoing trail commission from that new lender.
The commission model is designed to pay brokers a significant proportion upfront to cover their loan-arranging services, while deferring a larger payment to the broker in the form of trail commission to ensure ongoing service over the long-term.
What is clawback?
When a borrower pays off or refinances their home loan within two years of settlement, banks charge mortgage brokers a fee called “clawback”. The fee amount varies depending on the lender, but most banks charge the full upfront commission paid to the broker if the loan is prepaid within the first year. In the second year, the clawback fee may be reduced to 50% of the upfront commission.