TRAILING COMMISSION REBATES
OK - time for some boring mathematical comparisons.
 
What this page shows is the effect of receiving trailing commissions only versus 100% of upfront and trailing commissions.
 
For more on a comparison of cash back (or commission rebate) models and the marketing gimmicks used in the cash back mortgage broking space refer to our "Beware the Traps" Page.
 
To keep things simple we have used an example of a $500K home loan over 30 years with no ongoing fees and average (conservative) upfront and trailing commission rates available from mainstream Lenders.
 
The following table shows the cost of interest you would pay if you took the loan direct from the Lender or via a traditional mortgage broker, the cost of interest assuming you get 70% of the trailing commissions, and the cost of interest if you receive 100% of both upfront and trailing commission.  It also shows the relative savings of one option over another.
 
We've also included a few different interest rates so you can see that the higher the prevailing interest rate the more significant commission rebates become.  Amounts have been rounded to the nearest whole dollar.
 
Note:  The figures below assume each Broker recommended the same loan Product.  Unbiased (i.e. independent) advice could save you significantly more than just the effect of commission rebates.  Our analyses regularly show savings of as much as double these interest savings due to selecting a more cost-effective loan product.  N.B.  This is when compared to a loan product recommended by another mortgage broker as being "the best" for that Client - not just compared to the loan the Client already has.  Refer to our Case Studies Page for more detail.
As you can see the savings from 100% rebate of upfront and trailing commission are almost double those obtained from trailing commission alone.  Another way of looking at this is to compare the savings effect if you only ever received one single upfront rebate compared to receiving 70% of trailing commission over the life of the loan.
The things to draw from this table are that:
 
  • the effect of an upfront commission alone can be quite significant.
 
  • foregoing the upfront commission is costing you between half and two thirds of your potential benefit.
     
  • the "free service" being offered to you by handing over your upfront commission is actually not free - it's costing you tens of thousands of dollars in extra interest
     
  • you only get the full benefit of the trailing commission if you stay in the loan for 30 years.
     
  • you get a benefit from the much larger upfront commission regardless of how long you stay in the same loan.
 

CUT THROUGH THE HYPE - SAVE YOURSELF THE NUMBER CRUNCH:
 
ASK THE MORTGAGE BROKER IF THEY ARE INDEPENDENT - AND GET IT IN WRITING!!