A property purchaser has many options, including approaching a specific bank directly, dealing with a mortgage originator or a bond finance company or even getting a loan from the seller of the home. Common practice in South Africa is to deal with a bond originator, which was introduced into the South African market during the 90s.
The question that most buyers ask is whether the buyer pays an extra fee if he or she applies through a bond originator. The truth of the matter is that the bond consultant, working for the bank will get a commission, similar to the way the originating consultants are paid on commission. Somewhere, someone is getting paid a commission within the system for putting together a bond application.
A good estate agent will be connected to a reliable bond originator. The sole purpose of a bond originator is to save the buyer money by obtaining the best interest rate for a bond. Take a case study of a buyer who recently purchased an apartment for R9.3m. He put down a deposit of R4.8m and needed a bond of R4.5m. He approached his own bank with whom he had had an exemplary business and personal banking relationship for more than five years.
To his surprise, they were not prepared to offer him anything better than the prime interest rate. His estate agent then introduced him to a mortgage broker, who obtained quotes from the four big banks, including the buyer's bank. The outcome was that one of the banks with whom he had no history offered him a bond at prime less 1%. Based on a twenty year bond repayment term, this equates to a saving of R672 084.
According to Marc Hendricks, director of Major Mortgages, a bond originator will approach the major banking institutions with the application for finance on behalf of the purchaser. From there the originator will negotiate with the banks, and source the best deal possible, therefore presenting the purchaser with options and knowledge on what each financial institution is prepared to offer.
Expertise and experience enable the bond originator to obtain a better deal for the purchaser than the purchaser could get. This process of mortgage origination does not cost the consumer a cent, as mortgage originators are paid a commission by the banks for introducing the bond to them. The bank will also not charge the consumer for using a mortgage originator.
