You are comparing home loans, and someone has suggested you talk to a mortgage broker instead of only walking into your own bank. It sounds convenient, maybe even free. But the arrangement is a little unusual: the broker works for you, yet gets paid by the lender you end up borrowing from. Understanding how that works, and what the law requires of them anyway, is the whole point of dealing with one.
What a broker actually does
A mortgage broker's job is to work out what you can borrow, compare loans from a range of lenders against your situation, and manage the application through to approval. That means gathering your financial information, running it against different lenders' criteria, recommending a shortlist, and handling the paperwork, often including the back-and-forth that comes with conditional approval, valuations and settlement timing.
The appeal is straightforward: instead of you contacting several banks and lenders separately and filling out several applications, one person does the comparison work and knows which lenders are likely to say yes to someone in your position. For a buyer with a straightforward income and a clean application, that can save real time. For a buyer with something less standard about their situation, a broker who knows which lenders are flexible on that point can save you from a string of rejections.
How brokers get paid
Here is the part worth sitting with: you do not pay your broker directly. The broker is paid by the lender instead. ASIC Moneysmart sets out how that commission structure typically works, an upfront payment once your loan settles, followed by a trailing payment over the life of the loan for as long as it stays open and you keep meeting your repayments. That is disclosed to you, but it is a different arrangement to your accountant or your buyer's agent, where you are the one paying the fee.
This is the industry payment model, and it is why using a broker often costs you nothing upfront. It also means the broker has a relationship with the lender as well as with you, and that is exactly why the law does not leave it to trust alone.
The best interests duty
Since reforms to the National Consumer Credit Protection Act 2009, mortgage brokers in Australia are bound by a best interests duty. This is a legal obligation rather than a marketing promise or an industry code of conduct. A broker must act in your best interests when providing credit assistance, and where there is a conflict between what benefits you and what benefits the broker or the lender, your interests have to come first.
In practice, this duty is meant to shape the recommendation itself: the broker cannot steer you toward whichever lender pays the best trail, or whichever loan is easiest to process, if that loan is not actually the one that suits your circumstances. ASIC Moneysmart sets out what this means for borrowers and what avenues exist if you think a broker has not met that standard.
It is worth being clear-eyed about the duty's limits. It obliges the broker to prioritise your interests in their recommendation. The lender payment model and the limits of the broker's panel still matter.
Broker vs going direct to a bank
A broker typically works with a panel of lenders they are accredited with, not every lender operating in Australia. ASIC Moneysmart's guidance on using a mortgage broker notes that some lenders deal only directly with customers and sit outside any broker's panel. That means a broker can show you a wide comparison, but not necessarily the whole market, and a broker is not automatically the cheaper or better path compared with approaching a bank yourself. Sometimes going direct suits you better, particularly if you already have a strong relationship with a particular lender or a straightforward application that any lender would approve readily.
The honest way to think about it: a broker widens your comparison and does the legwork, and the best interests duty exists precisely because they are paid by the party on the other side of the deal. Those facts sit together, and that is exactly what the law is built around.
Questions to ask a broker
Before you commit to working with a broker, ask them directly:
- Which lenders are on your panel, and which major lenders aren't? This tells you the actual boundary of what they can compare for you.
- How are you paid on this loan, and does it change based on which lender or product I choose? You are entitled to this disclosure, and a broker who answers plainly is behaving as they should.
- Why this loan over the alternatives you looked at? A good broker can explain the recommendation in terms of your situation, more than the product's features.
- Have you checked whether I'd be better off going direct to a lender for this particular loan? It is a fair question, and the best interests duty means it is one they should be able to answer honestly.
Use a broker with eyes open about who pays them, and hold them to the legal standard that says your interests come first regardless.