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What does a bond originator do, and is it worth using one?
A bond originator is a company or person that applies for your home loan on your behalf, sending one application to several banks and then helping you compare the offers. Originators say the banks pay them commission, so the service costs you nothing directly. Whether it is worth using depends on how much time you have and how confident you are dealing with banks yourself.
What an originator does
You give the originator your details and documents once. They then submit your application to a number of banks and report back with the results. A good originator will:
- check your documents and your credit record before submitting;
- tell you roughly what you can borrow;
- apply to several banks at the same time, so you do not repeat the paperwork;
- explain each offer, including the interest rate, the loan amount and any conditions;
- help negotiate if you are offered terms you do not like;
- keep track of the process until the bond is registered with the conveyancer.
Some originators also help with switching an existing bond.
How they are paid
Originators say that banks pay them a commission when a loan is granted, and that buyers are not charged. This is the industry’s own description, so confirm it in writing before you sign anything. Ask directly: “Will I pay you anything, now or later?”
The arrangement does mean the originator earns money when a bond is approved. That is not a reason to avoid one, but keep it in mind. Your interests and theirs are mostly aligned, as you both want the loan approved, but the originator may not always find the cheapest offer in the market. Look at the offers yourself.
Check who you are dealing with
Do not assume every originator is properly authorised. Ask to see their credentials, and check with the Property Practitioners Regulatory Authority (PPRA). Do this for individual consultants as well as the company. Be wary of any upfront fee for a service that is meant to be free to you.
Ask these questions:
- Which banks will you apply to, and are any left out?
- Will you show me every offer, including the ones you think are worse?
- Do I pay any fee, and is that confirmed in writing?
- Who will handle my personal documents, and how are they kept safe?
- What happens if I go to a bank myself afterwards?
Going direct to your own bank
You can always apply yourself. If you already bank with a lender, you may find the process simple, and your account history is already on file. The drawbacks are that you might get only one offer, and applying to several banks yourself means repeating the paperwork.
A sensible approach is to use both. Get an offer from your own bank, then ask an originator whether it can do better. Whichever you choose, compare the offers on the same terms:
- the interest rate, and whether it is fixed or variable. See fixed or variable interest rate;
- the loan amount and the deposit required;
- the term, and what the monthly instalment will be;
- initiation and monthly service fees;
- whether you can pay extra, as covered in paying extra into your bond.
When an originator makes most sense
- You are a first-time buyer who has never dealt with a bank on a loan.
- You have an unusual income, such as commission or self-employment, and want help presenting it.
- Your credit record is not perfect and you want to know which banks might consider you.
- You are short of time.
It makes less sense if you already have a clear offer from a bank you are happy with, or if you do not want your documents shared with several parties.
What to do next
Work out your own limits before anyone sells you a loan. Use the affordability calculator to set a comfortable monthly figure, and check what it will cost to run the bond in the bond repayment calculator. Read how home loan pre-approval works to know what to expect, and keep your papers ready.
This article is general information for South African readers, not legal, financial or tax advice. Rules and rates change, so check your own situation with an attorney, your bank or a tax practitioner. Our property calculators can help you work out the numbers.