Exploring the Financial Aspect of Starting a Broking Business

If you're considering venturing into the world of mortgage broking, understanding how the money and payments are made is essential. As a broker, your income will primarily come from commissions earned through successful transactions.

This commission is typically a percentage of the loan amount and is paid by the lender following the loan settlement. It's important to note that commission rates and payment terms vary among the lenders. And that as a broker you have a fiduciary duty to act in the best interest of your clients. This means prioritising finding the solution that is in their best interests, rather than focusing on the commission.

Here is a snapshot of what the payments can look like for a residential home loan:

1. Residential home loan upfront payment – 0.65%
2. Residential home loan trail payment – 0.15%

The upfront payment will be made “net of offset” or “redraw”. This means that the commission payment will be calculated on the loan amount minus any money held in offset/ redraw account linked to the mortgage. 

The lender will review the loan post loan settlement to determine the balance amount to pay commission on. The timing of this review varies among the lenders. And loans that settled in the later part of a month may not get reviewed until early the following month. In these instances, the commission payment would get paid the month after. For example, you settle a $500,000 home loan on the 28th of June 2023. 

The lender will review the loan, seven business days post settlement on 7th July 2023. Upon review $25,000 is held in offset. Therefore, the commission payment would be made at $475,000 and paid at the end of August 2023. If this same loan settled instead on the 7th of June 2023, then the payment would have been made at the end of July 2023. 

Trail commissions are paid on the loan balance each month. They are also paid for the life of the loan. Which on average is about 4 years. 

During the startup phase of business, it is not uncommon to have ‘lumpy income’ until the trail book builds, and you become more consistent in your settlements. Achieving this takes time and involves careful financial planning. It's vital to consider your expenses, such as licensing fees, professional development, marketing, office costs, and tax. Revenue generation can be slow because of the nature of the deal you are doing. People take time to buy. The bank can take a bit of time to approve and take longer to pay. So, you need to constantly be working on building the opportunity pipeline. All the while trying to run the business on the sniff of an oily rag. 

To get a better handle on this, we have created a Startup Broking course. You'll learn the secrets to managing cash flow effectively. Gain practical strategies, expert insights, and the confidence to drive profitability. Best of all it is FREE, and you can enrol here. 

Initially, it may take time to establish a client base and generate consistent income, so having a financial buffer is advisable during the initial stages. If you’d like an overview of the general business expenses along with how much money you can actually make as a broker read this article. 

In addition to commissions, some brokers may charge clients a fee for their services. These fees can be in the form of an upfront application fee or an advisory fee. The amounts charged can vary from a few hundred dollars to several thousand. Just depends on the business model that you chose to run. When a fee is charged a Credit Quote would need to be prepared and signed by the client.  

Loans Only can also assist brokers with obtaining referral commissions for home and life insurance, as well as utility connection and even FOREX. Investment property referral commissions can also be facilitated. To maximise your earning potential, it’s important to create additional revenue streams to complement the upfront and trail commissions associated with the loans. 

With proper planning, dedication, and a client-centric approach, you can embark on a rewarding journey as a mortgage broker while earning a sustainable income and building a valuable asset.