Claw back fees, why should you not be upset when a broker charges them to you

As a mortgage broker in New Zealand, I work hard to secure the best possible mortgage terms and rates for my clients. One of the ways we earn income is through commissions paid by lenders, which is based on the size of the loan. However, in some cases, circumstances change, and the client pays off their mortgage earlier than expected. When this happens, the commission we earned on the loan is clawed back by the lender, and as a result, we may pass on these claw back fees to our clients. This option has to be disclosed to you as a client upfront. In the declaration form you will sign and in the disclosure document you receive as part of my service, these claw back fees are mentioned and explained.

While it may seem unfair to pass on these fees to clients, there are several reasons why it is necessary and reasonable.

Firstly, when a client takes out a mortgage, the lender incurs various costs such as processing and underwriting fees, appraisal fees, and legal fees. These costs are factored into the interest rate charged on the loan, and the lender expects to recoup these costs over the term of the loan. If a client pays off the loan early, the lender loses out on the potential profit they would have made from interest payments over the remaining term of the loan. Claw back fees help the lender recoup some of these losses, and as a broker, it is reasonable for me to pass on these fees to my clients.

Secondly, passing on clawback fees to clients helps ensure that they are aware of the financial impact of paying off their mortgage early. While paying off a mortgage early may seem like a good idea, it can result in additional costs in the form of clawback fees. By making clients aware of these fees, they are incentivized to carefully consider their options and make informed decisions that align with their long-term financial goals.

Finally, passing on claw back fees to clients helps ensure that brokers are not unfairly penalized for circumstances beyond our control. While we work hard to secure the best possible terms and rates for our clients, we cannot predict the future and cannot be held responsible for unexpected changes that result in early mortgage payoffs. By passing on claw back fees to clients, we are able to recoup some of the lost income without being unfairly penalized.

In conclusion, while it may seem unfair to pass on claw back fees to clients, it is a necessary and reasonable part of the mortgage industry in New Zealand. Claw back fees help lenders recoup lost income, incentivize clients to carefully consider their options, and ensure that brokers are not unfairly penalized for circumstances beyond our control. As a broker, I believe it is important to be transparent about these fees and explain some of the “hidden costs” are involved with repaying a loan early or refinancing a loan to a different bank

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