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How Australia's mortgage market can benefit you

How Australia's mortgage market can benefit you

Gone are the days of relying on the only bank in town for all your financial products. With a range of lenders offering hundreds of home loans in Australia, having a variety of options to compare greatly benefits home loan customers.

They say variety is the spice of life and the same is true of the home loan market. The more options you have to choose from, the more likely you are to find the best home loan for your specific needs and budget.

Let’s explore the different lenders in the mortgage market and why comparing your options will always benefit you in the long run.

The different lenders in Australia’s mortgage market

There are a multitude of different home loan lenders in Australia, from banks to credit unions and online lenders. Generally speaking, most can be classified in two categories: Authorised Deposit-Taking Institutions (ADIs) and Non-ADIs.

Only an ADI may be considered a ‘bank’, as ADIs are authorised by the Australian Prudential Regulation Authority (APRA) to accept deposits by providing bank accounts, savings accounts and term deposits. Whereas a home loan lender may have approval to lend you money, but it cannot offer deposit products.

ADIs currently may include banks, like the big four Banks and their subsidiaries, some neobanks and some online lenders. It may also include Credit Unions and Building Societies. Non-ADIs may include finance companies, like some online lenders, as well as money market corporations, like mortgage brokers.

The advantages and risks of different home loan lenders

Having a range of home loan lenders at your disposal means you can research and compare options that offer you the most advantages. But it’s also important to keep abreast of the disadvantages of different lenders.

Lender TypeBenefitDisadvantageExamples
Big banks
  • Greater sense of security as less likely to default.
  • Greater range of products. Can have all banking products with one lender.
  • Can offer more customer service reach state-wide or nationally.
  • Can offer higher interest rates and fees on average.
  • Not always as fast on the update of fintech or innovation.
CommBank, Westpac, ANZ, NAB, HSBC, ING, Macquarie Bank.
Member-owned lenders
  • Not owned by shareholders. Customers own shares of tge lender and may influence or vote on policy and governance.
  • May offer lower interest rates and fees than big banks.
  • Works to service the community.
  • May be regional-specific so not accessible nationally.
  • May need to be a member of industry to apply, such as Firefighter or Police Officer.
Great Southern Bank, G&C Mutual Bank, Credit Union SA, QBANK.
Online lenders and neobanks
  • All online based so fewer overheads. May pass on savings in the form of lower interest rates and fees.
  • First to roll-out innovative features and fintech. For the tech-savvy.
  • Still covered by the Financial Claims Scheme if an ADI.
  • No branches and reduced customer service.
  • Hard for those who rely on face-to-face support.

Unloan (by CBA), HomeStar, Reduce Home Loans, loans.com.au, tic:toc.

How comparing home loans can benefit you

As you can see, there are more home loan lenders and mortgage options than just the one offered by your childhood bank. Comparing your options before you sign on the dotted line may mean you benefit from:

  • Saving money on interest charges by opting for a lower-rate loan
  • Saving money on fees by opting for a low-fee loan
  • Utilising features like an offset account for added flexibility
  • Finding specialist loans, like alt-doc and low-doc loans, if you’re self-employed or a business owner
  • Aligning with a lender that suits your needs, like one that offers branches or provides innovative fintech

For example, if keeping costs low is a main objective for your home loan journey, choosing one that offers a competitive interest rate could save you thousands in interest. On a 25-year, $500,000 home loan, opting for one that is even just 50 basis points lower could mean serious savings for your household budget.

Repayments on a hypothetical 25-year, $500k home loan

Home loanInterest rateMonthly RepaymentsPayments in one year
Option A3.5%$2,503$30,036
Option B4.0%$2,639$31,668

Source: RateCity.com.au. Note: Hypothetical example based on 25-year, $500k loan repayments over one month and one year. Does not factor in fees or rate fluctuations.

As you can see, by not taking the time to compare options and choosing home loan B, the borrower is paying an additional $1,632 in just one year from higher interest charges. This is the equivalent of an annual utilities bill or a weekend away with the family.

And it doesn’t just stop after you choose your first home loan. Every few years, it is worth comparing the home loan market to ensure you’re still getting the best possible deal for your mortgage. This can be especially useful if you’re repaying a fixed-rate home loan and the fixed period is coming to an end.

Not only can you consider refinancing to a better home loan deal, but you can always just use this research to negotiate a lower home loan rate with your current lender.

Compare lower-rate home loans

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.



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