How do bond originators make money?

Article summary

• A bond originator (also known as a home loan comparison service) submits a home loan application to multiple banks on behalf of their clients, and charges no fee for this service.
• That’s because financial compensation already comes in the form of a fee paid by the banks.
• This fee does not in any way affect the interest rate that the client will have to pay on the home loan.

Putting in an offer to purchase a home is an exhilarating feeling – one you don’t want dampened by red tape.

With ooba home loans, South Africa’s largest home loan comparison service, there’s a lot less to worry about. Their assistance with the prequalification and home loan application process makes things that much simpler for home buyers, and added to that, their services are completely free-of-charge to the client.

You’d be forgiven for thinking there’s some kind of catch, but there isn’t. Like real estate agents, a home loan comparison service such as ooba home loans receives financial compensation in the form of a fee, although in their case, it’s paid by the bank that granted the home loan.

Why do the banks pay a fee?

Bond originators (also known as a home loan comparison service) save the banks a lot of money by securing home loan applicants on their behalf. These are resources that the bank would otherwise have had to invest in themselves in marketing their own home loan packages.

The home loan comparison service also submits the home loan application to each bank according to their individual systems and requirements, saving the banks the expense of doing it in-house.

So a home loan comparison service like ooba home loans is essentially doing much of the bank’s marketing and admin for them. That’s why the bank can pay them a fee and still be saving money in the process.

Does the fee affect the home loan interest rate?

Are the banks passing the cost of the fee onto the home buyer in the form of the higher home loan interest rate? This is a fair question, as anyone with a basic understanding of economics knows that vendors tend to pass overheads onto consumers in the form of higher prices.

But the answer is no. Interest rates are based on how much of a risk the bank perceives the client to be, which in turn is based on factors such as the client’s credit rating, the size of their deposit, and the term of the bond. Fees paid by the bank do not affect the interest rate.

So, there’s no concern about having to pay a higher interest rate as a result of employing a home loan comparison service. In fact, since they apply to multiple banks on your behalf, you have a better chance of receiving a favourable interest rate than if you had negotiated with the bank on your own.

A home loan comparison service gets you the best deal at no charge

In summary, ooba home loans gets you the best deal at no cost to you. A home loan comparison service is geared toward sparing you the red tape involved in going from bank to bank looking for the most attractive home loan package.

They source multiple quotes for you to compare; deal with the tedious, repetitive paperwork; and leverage the relationships they have with the banks to negotiate on your behalf.

Another way in which they make the home-buying process easier is by offering a range of home loan calculators. Use these to determine exactly what you can afford, then get prequalified with ooba home loans’ free, online prequalification tool, the ooba Bond Indicator. Once you’ve found a home that meets your requirements, you can apply for a home loan.