Are online mortgage lenders offering the loans of the future?
Applying for a loan? Find out if an online mortgage lender is right for you.
If looking for a home loan wasn’t overwhelming enough: enter the online mortgage lenders. Digital banks are becoming a serious contender in the home loan market.
These are online-only lenders who don’t maintain physical branches. Some market themselves as ‘neo banks’, while others are closer to a traditional lender but operate online.
What are the advantages?
Competitive interest rates
Online mortgage lenders usually offer very competitive interest rates and low- or zero-fee products. Because they don’t have the same overheads that a bricks-and-mortgage institution does, they can cut their prices further.
Superior technology
Neo banks also offer fast online applications and approvals. You can upload your documents online and complete all your transactions without having to meet someone in person.
The process is usually quicker and more seamless than the online options offered by traditional lenders. Traditional lenders are often using ‘legacy’ technology: old technology that has been added to over the years and has become cumbersome and prone to error. Neo banks have been able to build new technology systems from the ground up, making them more agile and easier to use.
Spending apps
Neo banks also offer budgeting apps that are tied directly to their products. While there are several excellent budgeting apps already on the market, these apps are already linked straight to your bank account. There’s no need to manually input your transactions: they populate to the app as soon as you use your card. Using AI, the app categorises each expenditure so you can easily see where your money is going. Discover budgeting tricks to boost your savings here.
If you’re looking for competitive interest rates and a seamless process using the latest technology, an online mortgage lender could be a good option. Neo banks have been able to build easy-to-use technology systems from the ground up, and with maintenance of a physical branch out of the equation, they’re able to cut their fees!
What are the downsides?
Lack of physical presence
Some people prefer to transact their banking in person. If that’s you, an online mortgage lender won’t be the right choice. While digital banks do all they can to make it easy to bank online, many people find that it’s easier to get everything sorted out face to face.
Fewer products
Digital lenders are usually offering a streamlined service, which is what allows them to cut their costs. However, this means there are less products on offer.
Many, especially the neo banks, only offer home loans, or home loans with an offset account. If you want a bank that can also give you a personal loan, credit card or term deposit, you may need to look elsewhere. Learn more about offset accounts here.
Risk averse
Online lenders are often very risk averse. That means that if you’re non-traditionally employed (self-employed, freelance or hold multiple part time jobs), have less than stellar credit, or you’re buying a property for your self-managed superannuation fund, you may have to jump through more hoops to get approved.
You may also struggle to get a home loan for a higher risk property, such as rural landholdings or commercial property, or for a construction loan in some circumstances.
If you’re self-employed and saving for your dream home, it could be tricker to secure a loan with an online lender. But don’t despair! Read more about home loans for the self-employed here. Featured here: Portland, Minta Estate, Berwick.
How do I know if an online lender is reliable?
The relationship between bank and borrower relies heavily on trust. If the lender has no physical presence, how can the borrower know that they’re legitimate?
Most are backed by a larger lender. For example, UBank is backed by NAB, Tic:Toc is backed by the Bendigo and Adelaide Bank, and ING is part of a global financial group of the same name. Even smaller businesses without the backing are bound by Australian financial regulations and subject to stringent licensing rules. Always check that a lender has an Australian Credit Licence (ACL) and check the number of the licence with ASIC Connect.
If lower interest rates and a seamless online experience are what you’re looking for, put online lenders on your home loan list. It’s wise to have a talk to a mortgage broker before putting in an application. They can help you sort through the products available and advise you whether a digital bank is right for your circumstances. Exploring new lending options, such as online mortgage lenders, may open the door to competitive rates. Use our Mortgage Refinance Calculator to compare potential savings and evaluate if refinancing with a digital lender is right for you.
Visualising your dream home and practically planning the interior already? Make sure you talk to a mortgage broker before you submit your loan application. They can help you decide if an online lender is right for you. Featured here: Indigo, Orana Estate, Clyde North.
Thinking of investing in property in the coming year? Make a time to visit a few of our 80+ display homes, conveniently located across Melbourne, and see why Carlisle homes make a fantastic long-term proposition.