MORTGAGE ORIGINATION
IN SOUTH AFRICA

Mortgage originators are responsible for sourcing the best mortgage rates for their clients at the bank of the client’s choice. The most favourable rate allows homeowners to pay off their loans much faster and also translates into more money in their pocket at the end of the month. Mortgage origination services are relatively new to the South African market, though people are swiftly realising that originators save them both time and money.

Launched roughly six years ago, originators have changed the way that many people go about sourcing their bonds. Today, the percentage of applications handled by originators is close to 70% of all new bonds registered. An increasing number of local estate agents are now also using the services of mortgage originators.

It is not uncommon for estate agencies to place business with just one specific originator, which has been known to leave the industry red in the face. Essentially, the client should always have a choice regarding which originator and bank he/she chooses. From the client’s perspective, the best rate and service is all that matters.

When interest rates are low and the market’s credit criteria softened, it is relatively easy to source a home loan. However, with interest rates currently on the rise and banks tightening their credit criteria to limit their risk of bad debt, the time has come for the better-trained and more experienced originators to assist clients.

Clients often choose to work with more established originators, many of whom are now expanding their services to include insurance. Savings are thus also made on insurances often taken out in conjunction with a home loan, such as homeowners and short-term insurance, as well as bond cover.

Mortgage originators have played, and continue to play, a major role in reducing home loan prices. Increased competition for clients has resulted in banks reducing their interest rates. This has happened steadily over the past four years. Previously, a prime interest rate was considered a good rate. Today, prime less 1.5% is almost normal practice.

For those who took the plunge and purchased a property without the use of an originator, options still exist. By switching to a bank that offers better deals, home loans can be refinanced, though this does involve the cancellation of the bond at the current financier and the registration of a new bond with the new financier.
This option looks set to play a major role in the home loan industry and with an inflow of foreign home loan players expected to increase competition even further, Bonds Africa advises clients to exercise caution before moving to other financial institutions.

Find out what costs are involved in changing the bond before doing this, and find out who will pay for the registration of the bond. In some cases, the new financier pays the costs, though it is not uncommon for the client to pay bond registration costs to attorneys, should he/she prefer to work through other channels. This sort of account involves a pre-negotiated deal with specific attorneys. Getting discounted rates from them for increased business volume often means that the bond originator may pay registration costs to the attorneys involved.

Beware of companies that do not have established track records. It is advisable to stay with South African banks and financial institutions, as they have a good understanding of the current financial industry of the country. Several local institutions offer competitive packages and will help you find the best deal and one suited to your specific needs. The thing you neither want nor need when buying a house is a problem with the administration of your home loan.