Applying for a home loan through a bond originator has become almost automatic in the past few years.
Using a bond originator saves you time and paperwork and often means that banks’ turnaround time is reduced, so that you get quotes faster. Often, your estate agent will pass your name on to a mortgage origination company, meaning that you don’t even have to make the phone call; they’ll call you. What’s not to love?
Well, for starters, say industry experts, you should make sure your bond originator is independent. You have the right to choose your own bond originator, as your home loan is involved. Don’t be pressured by an estate agent into signing with a particular originator. Check your offer of purchase to make sure that you aren’t locked into a relationship with an originator upfront.
Melanie David, a director of Powerhouse Financial Services, says consumers need to be aware of their rights and that they are able to choose originators. When signing an offer to purchase, be sure to get other advice. ‘You need to get independent advice. An estate agent can’t represent both buyer and seller. Get your attorney or a buyer’s agent to read it over,” she says.
Bond originators are not always independent. Many estate agencies have agreements with originators and are paid commission for business they pass on.
‘If they are paying an estate agent or developer a commission, then there might be a conflict of interest and they might not have the client’s best interest at heart,” says Ian Wason of Bond Busters.
Wason says many so-called bond originators are actually aggregators who themselves work through a large originator. ‘This may have an impact on the length of time it takes for the deal to be approved and may have an affect on the interest rate given to the client.”
Wason says you should check if your bond originator will cover the entire market, including non-bank lenders, such as SA Homeloans and private banks such as RMB.
Originators earn commission from banks for the business they bring, resulting in suspicions that they place business with the bank that pays the most.
Why are bond originators so popular?
Bond originators claim to get you the best rate on your bond. What seems like a small difference between interest rates can save you a lot of money over the term of your loan. ‘A saving of 1% over the lifetime of your bond will save you about 50% of the value of your bond in compound interest,” says Wason. ‘Our biggest saving to date was 3,5%. That reduced the client’s 19-year bond to around 13 years.”
But it’s not always a good idea to move when a lower rate is offered because in most cases you will incur bond registration costs. ‘Moving your bond to a lower rate is not viable if the interest saving over the expected lifetime of your bond is not greater than the cost of remortgaging.
‘Also, it is not just about the rate any more, as the client may be paying a slightly higher rate on, for example, a ‘one account’ (as offered by First National bank) but will have savings in monthly account fees, consolidating their short-term debt, car repayments, and so on,” says Wason.
What does a bond originator do?
If you are in the market for a home loan, you can approach the banks directly to apply for a home loan or you can use a mortgage or bond originator. Bond originators will negotiate with the banks on your behalf to get the best interest rate. Some will offer extra services or offer to pay your bond registration fees to get your business.
Wason says it’s important to look not only at the interest rate, but also at the mortgage product itself to find the one that is most suitable for your needs. Flexibility, debt consolidation, fixed rates and other considerations could be more important than getting the lowest rate possible, depending on your circumstances.
Taking a somewhat different tack, Bond Busters describes itself as an independent mortgage broker that aims to get homeowners better interest rates on their existing bonds and releasing equity, or profit, from an increase in value from properties.