It’s clear that Australian’s are becoming more and more comfortable with online lenders, with trust in the internet based lenders soaring in the last few years. Coupled with the fight against the big banks post-GFC, online lenders are seeing significant increases in their popularity. So can an online home loan really save you money?
Smaller lenders in competition with the big banks
According to Louise Petschler, CEO of Abacus, since the GFC period the big banks, through acquisition, have been able to take a larger share of the market.
The Advisor has also reported that more than 70% of mortgage brokers expect the fortunes of major banks to reverse, predicting their market share will fall this year.
In February, HomeLoanFinder.com.au surveyed 20 lenders, of which only three lenders passed on in full the December RBA cash rate cut. Of these three, two are online lenders.
Further, research by online lender Homeloans last year revealed that 80% of mortgage brokers believe smaller lenders are a competitive alternative to the big banks. Non-bank lenders make up 25% of the loans mortgage brokers write.
Why go online?
Online lenders often provide lower interest rates than the major lenders. In addition, often these leading interest rate products come fully-featured with 100% offset accounts and flexibility options that the big four certainly don’t offer on their baseline products.
In addition online lenders don’t have physical branch networks, so these cost savings are passed on directly to the consumer.
There are also great lending options for borrowers who wouldn’t necessarily qualify for a loan from a major lender, encompassing customers of a wider age-range and credit history. Homeloans and State Custodians are two lenders who offer strong options in these areas.
Online lenders tend to have strong levels of customer service and highly experienced staff.
Mortgage brokers themselves use online home loans for quick turnaround. Delays on a mortgage can be stressful and can even result in a home purchase falling through. Going online can reduce this risk.
The latest variable rate offers:
- Loans.com.au Blackboard Special: 5.11% p.a. comparison rate
A really competitive offer with a low interest rate. All with the value of a fully-featured home loan including a 100% redraw offset facility.
Special feature: A flexible, low minimum loan term and an exceptional maximum interest only option of 10 years.
- UBank UHomeLoan (Refinance Only): 5.12% p.a. comparison rate
UBank, NAB’s online lending arm, has an upfront discount of 0.25 per cent per annum. This home loan is only available for refinancing.
Special feature: 24 hour customer service.
- Bankwest Online Home Loan: 5.39% p.a. comparison rate
Bankwest is offering a waived application fee (normally $695) for a limited time. This deal is only available online. Bankwest is backed by CBA.
Special feature: Low upfront establishment costs.
The latest fixed loan offers:
- Loans.com.au Dream Loan Express – 1 Year fixed: 5.28% p. a. comparison rate A low rate of interest with a degree of flexibility not common among fixed interest rate loans.
Special feature: Up to $10,000 of free extra repayments allowed.
- iMortgage 2 Year Fixed Pro Pack: 5.43% p. a. comparison rate
iMortgage has offered a competitive low interest rate loan.
Special feature: High maximum borrowing of 95% Loan-To-Value Ratio (LVR).
- eMoney Pro Pack 75 – 3 Year Fixed: 5.51% p. a. comparison rate
eMoney has a low interest rate and offers unlimited additional repayments.
Special feature: Construction loan option.
How much can you save by switching to a lower rate?
Consider these two scenarios. Scenario 1 is a typical standard variable rate loan; Scenario 2 is the same package but with a 1% lower rate.
|Scenario 1||Scenario 2|
|Interest Rate||6.50% p.a.||5.50% p.a.|
|Loan term||25 years||25 years|
|Repayments per month||$2,700||$2,456|
By switching to a loan with a 1% p.a. lower interest rate you could save $73,344 over the life of the loan.
Many Australian’s will be switching to online lenders this year to save money and gain value. It might be time for you to consider switching too.