Borrowed time

He bases this belief on the fact that the 2% commission that is negotiated in South Africa exceeds the international norm of between 0.3% and 0.5% of the value of the mortgage bond obtained. However, it must be noted that, to be competitive, many bond originators offer part of their commission to the estate agents that refer business to them or, in other cases, they offer to cover part of the legal costs for registering the mortgage bond. He disputes the argument that bond originators are saving consumers billions of rand in interest because the increase in competition in the mortgage bond market has forced banks to reduce their interest rates on mortgage bonds.

This would indeed be the case if the assumption is that mortgage bonds will continue to be paid off in full over 20 or 25 years. In fact, they are on average being paid in seven years. Finally, competition over the last few years between banks has been so intense that interest rates on mortgage bonds would have fallen anyway.

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