For those who don’t have instant cash to pay for a property purchase, a bond is of course the obvious answer. What’s not so obvious however, as it’s not something the average person does more than once or twice in their lives, is how to get that bond.
An article published in Business Day, Homefront, late last year explains the options. I’ve taken the liberty of sharing it here:
“In South Africa a bond or home loan can be secured in one of three major ways: directly through a bank, through a bond originating company notably Ooba, BetterLife Home Loans and Multinet Mortgages or through a specialist bond lender such as SA Home Loans. There are also numerous smaller bond brokers, who aggregate their business through the larger bond originating companies.
Who then should one use?
The single most important factor – for starters – is that through any reputable avenue the service of bond origination to the consumer is free of charge. Recent stories include the case of a client being charged 8% of the value of the bond. This should never happen.
“There are some rogue agents out there who charge what they call ‘raising fees’, they tell the clients it’s for their services, for handling the paperwork and negotiating with the banks on the client’s behalf. However, reputable bond originators, bond lenders and the banks discourage and oppose agents from charging these fees. It is not unlawful, but is considered unethical and not best practice. The originators get paid a referral fee on a bond, paid by the bank and not charged to the client or added to the client’s cost of finance. From this fee the originators will pay the agents for their services,” explains BetterLife CEO Shaun Rademeyer.
That aside, there are some differences between the banks, bond originators and the specialist bond lenders.
Banks
A buyer can approach any bank to ask for a home loan. Many buyers start with their own banks, hoping for preferential treatment. They are then referred to the home loans division where they deal with a consultant who helps them complete the necessary documentation, submits their application, and informs them whether a loan can be granted. The buyer is of course free to repeat this process with the other banks and in effect “shop around” for the best deal.
Bond originators
A buyer can also approach one of the large bond originating companies. A broker from this company will guide the buyer through the application process and submit the application to any of 8 or 9 banks in the country. If approval is granted the broker is able compare offers and negotiate rates and terms on behalf of the buyer. A buyer can also approach an independent bond aggregator. This agent also prepares the application for the buyer, and then aggregates it through one of the larger companies, whereupon it will follow the above-mentioned process.
Specialist Bond Lenders
These are privately financed companies which specialize in residential mortgage bond lending. Currently only SA Home Loans, the country’s fifth largest home loans provider, in operation for 15 years, offers this service. Dealing directly with the public and competing with the banks, they often have different credit criteria to the banks and may grant bonds in instances where banks have declined applications. With over 120 000 current clients, SA Home Loans pride themselves on offering innovative and creative loan solutions that can be tweaked to address the unique needs of each client.
In general though, with bond approval rates ranging between 40 and 70%, getting a loan is not guaranteed. Whether you go directly to a bank, approach a specialist bond lender or take your business to a bond originator, there is significant benefit in shopping your application to multiple lenders. Both Ooba and BetterLife boast statistics that show up to 33% higher bond approval rates than those indicated by individual banks. Consumers should also be aware that interest rates offered by banks can vary by as much as 4% and more.”
So where does Rodel come in?
Rodel steps in after a bond has been approved, after the sale agreement has been signed. In a situation where the seller (or a buyer who is also a seller) needs funds after the sale has been concluded but before transfer has taken place, Rodel is able to offer bridging finance. Typically this is an advance of cash for about 45 days which people often use to pay arrears rates, or transfer duty on a new property. Rodel also advances against further bonds registered on existing homes. In other words, if someone has extended the bond on their property to do alterations, and would like to start immediately, Rodel can advance cash for the time between bond approval and registration of the bond – generally about a month. Because Rodel lends in a space where banks do not, we can pay out 75% of our deals within 24 hours.