As you evaluate options for a new loan origination system, you’re probably debating between an on-premises solution you host and manage yourself versus a cloud-based software-as-a-service. While SaaS is all the rage, on-premises isn’t dead yet. In fact, for some lenders an on-site system still makes sense. Before you dismiss it, consider the pros of having a system under your own roof. You’ll have more control and security over your data and software. You can customize it to your heart’s content. And you may even save money in the long run. However, on-premises comes with cons too, like the responsibility to maintain and update it. And it can be pricier upfront. As with any big decision, you need to weigh all factors based on what will serve your business best both now and for years to come. An on-premises loan origination system could be the right choice if you go in with eyes open to the good, the bad and the ugly.
What Is a Loan Origination System?
A loan origination system (LOS) is the software platform used by lenders to process mortgage applications. As a lender, an on-premises LOS means you have the system installed on your own local servers within your office. This provides more control and security over borrowers’ data compared to a cloud-based system. However, it also comes with higher costs and more responsibility.
Pros of On-Premises LOS
Higher security. With an on-premises LOS, all data is stored on your own secured servers. There’s no risk of data breaches from third-party vendors.
More control. You have full control and access over the LOS and data. You can customize the system to your specific needs without relying on vendors.
Avoidance of downtime. Since the LOS is housed and maintained internally, there’s less chance of experiencing system outages from network or hosting issues. Your LOS will be operational even if Internet access goes down.
Cons of On-Premises LOS
Higher costs. You’re responsible for all hardware, software, and maintenance costs. This includes servers, data storage, networking equipment, and IT staff. Costs can easily reach hundreds of thousands per year.
More work. Your internal IT team will need to handle all system upgrades, security patches, troubleshooting and general support. This diverts resources away from other areas of your business.
Limited scalability. It may be difficult to quickly scale your LOS as your business grows. You’re limited by your on-site infrastructure and may face expensive upgrades to handle increased volume.
Opportunity cost. The time and money spent on managing an on-premises LOS could be used for other strategic initiatives to improve your business.
In the end, you must weigh the pros and cons carefully based on your business needs and risk tolerance. An on-premises LOS offers security and control but at a high cost, while a cloud-based LOS reduces workload and expense but with less control. The right choice depends on your priorities.
Pros of on-Premises Installation for a LOS
So you’re considering an on-premises loan origination system (LOS) from Celestiq. Great choice! There are some major benefits to hosting the LOS on your own servers.
Cost Savings
With an on-premises LOS, there are no ongoing subscription fees. After the initial purchase and implementation, you own the software and hardware outright with no recurring charges. You’re in full control of costs and can budget effectively year after year.
Customization
An on-premises LOS gives you flexibility to customize the system to your exact needs and integrate with your existing tech stack. Celestiq’s open API and source code access mean you can tweak and optimize the LOS for your internal processes. No more settling for an out-of-the-box solution that only meets 80% of your needs.
Data Security
Hosting the LOS on your own secure servers means your sensitive borrower data stays within your firewall. There’s no worry about data breaches on external systems or uncertainty about how your data may be accessed or used by a software-as-a-service (SaaS) provider. You maintain complete control and governance over data security and privacy.
Reliability
With an on-premises LOS, you don’t have to worry about Internet connectivity issues disrupting your lending operations. The LOS and all your data remains on your local servers, accessible even if there’s an outage that impacts SaaS providers. Your lending process keeps on going no matter what.
While on-premises LOS ownership does require in-house IT resources to maintain the system, for many lenders the benefits of control, cost-savings, security, and reliability far outweigh the costs. If you want maximum control and independence, on-premises is the way to go. But if low maintenance and low cost are bigger priorities, a SaaS LOS could be better. The choice is yours!
Cons of on-Premises LOS Installation
Cons of on-Premises LOS Installation
Having an on-premises loan origination system means your organization is solely responsible for the entire system. This includes the hardware, software, and resources required to maintain it. While on-premises LOS does provide more control, there are some significant downsides to consider:
Higher upfront costs. Purchasing the necessary equipment, software licenses, and hiring IT staff to deploy and manage the system can be quite expensive. The total cost of ownership for an on-premises LOS is typically much higher than a cloud-based solution.
Ongoing maintenance and support. Your team will need to handle all system upgrades, data backups, security patches, and troubleshooting issues. This requires dedicated technical resources and time to properly maintain the LOS. If anything were to go wrong with the system, your organization would be solely responsible for fixing it.
Limited scalability. If you experience a sudden increase in loan volume, an on-premises LOS may struggle to scale effectively. Adding more computing power and storage can be difficult and expensive. This could impact system performance and slow down your lending processes.
Security risks. Safeguarding an on-premises LOS from cyber threats like data breaches ultimately falls on your organization. This requires continuously monitoring the system, keeping software up to date, and having robust security measures in place. If there were ever a security incident, your organization would be held liable.
Less innovation. Cloud-based LOS platforms are frequently releasing new features and updates to their systems. On-premises solutions typically have much slower release cycles and less incentive to push innovative capabilities. Your LOS could become outdated more quickly.
While an on-premises LOS does provide full control and data ownership, the long list of responsibilities that come with it may outweigh the benefits for some organizations. Unless your team has the technical expertise and budget to properly support an on-premises system, a cloud-based LOS is likely a better option.
Security Considerations for on-Prem vs Cloud LOS
When deciding between an on-premises or cloud-based loan origination system (LOS), security is a major consideration. As a lender, you’ll be handling extremely sensitive borrower data and financial information, so system security is paramount.
Data Storage and Control
With an on-prem LOS like Celestiq, all of your data is stored on your own servers under your direct control. You maintain complete oversight and access to your data. There’s no third-party hosting, so you avoid risks like data breaches of the vendor’s other clients impacting you. However, you are then fully responsible for the costs and resources to securely store and back up your data.
Customization and Integration
An on-prem system gives you more flexibility to customize the LOS to your specific needs and seamlessly integrate with your other systems. You have full control over updates and upgrades to the software. However, this also means your internal IT team will need to maintain and support the system.
Regulatory Compliance
For lenders subject to strict data security regulations like GDPR, an on-prem LOS may be appealing since you keep data within your own secure environment. It can be easier to enforce compliance measures under your direct oversight. But, you still need to ensure your on-prem system meets all regulatory requirements, which requires investment in security measures like encryption, authentication, and auditing.
Business Continuity
With an on-prem LOS, you avoid reliance on an external vendor’s servers and networks. But if your own servers or systems experience downtime, it can disrupt your entire lending operation. You must implement robust business continuity and disaster recovery plans to minimize risks from events like power outages, hardware failures or data center disasters.
While on-premises LOS deployment provides more control, security ultimately comes down to the effectiveness of your policies, procedures and systems. A reputable, experienced LOS provider with a track record of secure cloud-based systems may actually present less risk than managing security in-house. But for lenders who prefer keeping systems on-site, choosing a flexible LOS like Celestiq gives you the power to tailor security to your needs.
Customization Options With on-Premises LOS
One of the biggest benefits of an on-premises LOS is the ability to customize it to your exact needs and preferences. Since the system is installed locally, you have full control over the software and can make changes as needed.
Integration with other systems
An on-premises LOS can typically be integrated with your other existing software and databases more seamlessly than a cloud-based system. If you have a customized CRM or servicing system already in place, an on-premises LOS may be better suited to connect with those tools. The data integration and exchange between systems can be built to your precise specifications.
Security
For some lenders, security and control over data are top priorities. An on-premises LOS gives you full authority over system access and data storage. All data is housed in your own secure servers and databases. You determine the security protocols and permissions for users. For lenders handling very sensitive client information, this level of control may provide greater peace of mind.
Customized workflows
An on-premises installation provides opportunities to optimize workflows and processes to align with your way of doing business. You can modify everything from user interfaces to rule sets, data fields, and task assignments. Create custom status stages, checklists, and audit trails to support your loan lifecycle. Tailor the LOS to match your branding and the terminology you prefer to use.
Cost considerations
While an on-premises LOS provides more control and flexibility, those benefits come at a cost. The initial investment in hardware, software, installation, and configuration can be significantly higher than a cloud-based SaaS model. You are also responsible for ongoing maintenance, support, and upgrades to ensure optimal system performance and security. For a smaller lender, these costs may be prohibitive.
For lenders wanting a high degree of control and customization in their LOS, an on-premises installation can be an excellent choice despite the higher costs. The ability to closely match system capabilities to specific operational needs and security requirements is a compelling benefit for many organizations.
Integration Capabilities of on-Prem LOS
Having an on-premises loan origination system (LOS) means the system and your data are housed on your own local servers. This provides certain integration capabilities not possible with a cloud-based system.
Customization. An on-prem LOS gives you full control to customize the system to your specific needs and workflows. You can adjust settings, create custom fields, and build in proprietary processes without relying on a vendor.
Data security. For some, having data on local servers feels more secure. There is no risk of data being accessed through the cloud. Physical access to servers is tightly controlled and monitored. However, on-prem systems still require strong security measures like encryption, firewalls, and employee access controls to avoid breaches.
Existing system integration. If you have other technology systems already in place, an on-prem LOS may integrate more easily. You have flexibility in establishing API connections and don’t have to rely on a cloud vendor’s compatibility and approval. Of course, this depends on the openness and configurability of your existing systems.
Control. There is a sense of greater control and independence with an on-prem solution. You don’t have to worry about a vendor’s availability or uptime. However, you do shoulder the responsibility for server maintenance, updates, and issue resolution. Downtime can be costly.
While an on-premises LOS provides benefits around customization, security, and control, it also brings added responsibilities. The burden of hardware, software, and security administration falls on your organization. And as technology changes, on-prem systems require ongoing investments to keep them current, compliant, and competitive. For many lenders today, the scales are tipping in favor of cloud-based LOS options. But for some, on-prem still reigns, and with good reason. The choice comes down to your priorities, resources, and appetite for responsibility.
Cost Comparison: On-Prem vs Cloud LOS
When deciding between an on-premises or cloud-based loan origination system (LOS), cost is obviously a significant factor. There are pros and cons to both options from a cost perspective.
On-Premises LOS
With an on-premises LOS, you purchase the software upfront and install it on your own servers. This typically requires a large capital expenditure to purchase the licenses and hardware. However, after the initial investment, you own the system outright with no ongoing subscription fees. You have full control over the software and hardware.
The downside is that you are then responsible for all ongoing maintenance, support, and upgrade costs. As technology changes, you’ll need to purchase upgraded software and hardware to keep the system up to date. You also have to maintain the on-premises infrastructure, including servers, data security, and connectivity. These ongoing costs can end up being as high or higher than a cloud-based SaaS model.
Cloud-Based LOS
A cloud LOS, or LOS as a Service (LOSaaS), means you pay a monthly subscription fee for access to the software and infrastructure hosted by the vendor. This significantly reduces upfront costs since you don’t have to purchase the hardware and software licenses. The subscription model also typically includes ongoing maintenance, upgrades, support, and uptime guarantees at no additional cost.
However, over time, subscription fees can end up costing more than an on-premises system. And once you’ve subscribed, it may be difficult to switch systems without penalty. You are also relying on the vendor to keep the system up and running and to keep your data secure.
For many lenders today, a cloud-based LOS makes the most financial sense. The lower upfront costs and reduced maintenance burden often offset higher long-term fees. But for larger lenders with sufficient capital and technical resources, an on-premises LOS can still be a viable and cost-effective option. The final decision comes down to your institution’s needs, priorities, and risk tolerance.
Scalability Factors for on-Premises LOS
When considering an on-premises LOS, scalability is an important factor to keep in mind. As your lending business grows, an on-premises system may have challenges keeping up with increasing demands.
Limited Storage Capacity
With an on-premises solution, you are limited by the physical storage available on servers in your office. As loan volume increases over time, you may run out of space for new loan files and data. This could slow down your system and limit its functionality. To add more storage, you’ll need to purchase additional hardware, install it, and configure your LOS to use it.
Slower Performance
On-premises LOS software is installed on physical servers in your office. If demand for the system outpaces the server capacity, it may run slowly or become unresponsive during busy periods. Upgrading servers or adding more servers requires an investment in new equipment and technical resources to implement the changes. For some lenders, this additional burden on their IT staff and budget may not scale efficiently.
Difficult to Customize
On-premises systems typically require customized development to modify the system or add new features as your needs change. This custom work must be done by either your internal technical team or an outside developer with expertise in your LOS platform. Customizations can be expensive and time-consuming to implement, and they require ongoing support and maintenance. As your business grows in complexity, an on-premises system may not be able to keep up with the custom functionality you need.
Limited Access
With an on-premises LOS, you and your staff can only access the system when physically in the office or via a VPN. This limits productivity by preventing remote work and restricting access for stakeholders outside the office. An on-premises system won’t scale to support a distributed workforce or collaboration across multiple locations.
Overall, scalability is one of the biggest downsides of an on-premises LOS. As your lending volume and business complexity increase over time, an on-premises solution may have trouble keeping up and continuing to meet your needs efficiently. For long-term scalability, a cloud-based LOS is often a better choice.
FAQ on on-Premises Loan Origination Systems
With an on-premises loan origination system (LOS) like Celestiq, you host the platform and data on your own servers. This allows for more control and security over your system and data. However, it also means you take on more responsibility. Here are some frequently asked questions about on-premises LOS options:
Do I need IT resources to manage an on-premises LOS?
Yes, you will need dedicated IT staff to install, configure, and maintain an on-premises LOS. They will handle tasks like setting up the LOS environment, managing software and security updates, ensuring compliance, and troubleshooting any issues. If you lack strong IT resources, an on-premises solution may strain your team.
What are the hardware requirements?
An on-premises LOS requires physical servers, storage, and networking equipment to host the platform. The specific requirements will depend on the LOS solution and your usage needs. In general, you’ll want fast processors, lots of memory, redundant storage, and a reliable network. The hardware represents an upfront capital expense you’ll need to budget for.
Do I have to handle software and security updates?
With an on-premises LOS, your team is responsible for performing all system updates, patches, and upgrades to the software. This includes implementing new releases and security updates to ensure compliance, reduce vulnerabilities, and gain access to the latest features. If you fail to update regularly, your LOS could become outdated and insecure.
Is an on-premises LOS more secure?
While an on-premises LOS gives you more control over security, it ultimately comes down to how well you implement and manage the system. With diligent configuration and monitoring, on-premises solutions can be very secure. However, if you lack resources to properly harden the environment and keep software up to date, security may be at risk. For some, a hosted cloud LOS provider may actually offer stronger security.
Can I access an on-premises LOS remotely?
Yes, most on-premises LOS platforms can be accessed remotely with a secure login. However, if your servers go down or lose connectivity, the LOS will not be accessible at all. With a hosted cloud LOS, you avoid reliance on your own infrastructure for access and uptime. For many lenders, a hybrid model with on-premises core systems and cloud-based access works well.
Conclusion
So there you have it, the major pros and cons of running an on-premises loan origination system to consider as you evaluate options for your lending business. While on-premises systems provide more control and security, they also require significant resources to implement and maintain. Cloud-based systems are often more budget-friendly and scalable but may limit flexibility. Ultimately, you need to weigh all these factors based on your specific priorities and constraints. If tight control and security are most important, on-premises could be the right choice. If agility and low cost are bigger concerns, the cloud may be better. The good news is with today’s options, you can likely find a solution that balances your key needs. Now go forth and choose wisely! The future of your lending operations depends on it.
