Trail commission is an ongoing monthly payment made by a lender to a mortgage broker for maintaining an active loan on the broker’s book. It is calculated as a percentage of the outstanding loan balance — typically 0.10% to 0.20% per annum — and is paid monthly or quarterly.
How trail works. When a broker settles a $600,000 home loan, they earn an upfront commission at settlement. For the life of that loan, they also earn trail — for example, at 0.15% per annum, trail income on this loan would be approximately $75 per month, declining gradually as the principal is repaid.
Building a trail book. A trail book is the cumulative collection of active loans on a broker’s book. As a broker writes more loans over time, the total loan balance and therefore monthly trail income grows. A broker who consistently writes $40M per year for 5 years, assuming reasonable client retention, builds a trail book of $100M+, generating $100,000–$200,000 per year in passive trail income.
Trail book as an asset. Trail books can be sold. Typical valuations for residential trail books in Australia range from 1.5x to 2.5x annual trail revenue, depending on the quality, retention rate, and age of the loan book.
Clawback. Lenders claw back upfront commissions (and sometimes trail) if a loan is repaid within 18–24 months of settlement. Brokers need to factor clawback risk into their cash flow planning.
