Every few years, someone raises the issue of how bond originators get paid – usually to ask whether the commissions that banks pay originators are not being passed on to consumers in the form of higher interest rates on the bonds obtained through originators.
And the answer? No, they are not. On the contrary, consumers who apply for bonds through an originator almost always end up paying a lower rate than they could have negotiated on their own.
Rudi Botha, CEO of BetterBond says: “It’s important to understand that the commissions paid to originators have nothing to do with the interest rates that consumers are charged.
“The fact is, there is an operational cost for the banks to acquire any new bond business. In the past, the banks had to carry this whole cost in the form of advertising as well as salaries, benefits and infrastructure for a huge number of their own staff to take in and check new bond applications; advise borrowers of the various bond options available to them and the benefits of paying a deposit; put applications through the approval process and manage the successful ones through to final grant.
“Now though, a very large percentage of that work is done by the originators and the banks are able to employ and support far fewer home loan staff. In other words, originators are helping the banks achieve really significant operational cost savings, and the commissions that we are paid come out of those savings.”