To get a home loan, you’ll need a bank account in order to manage the repayments. However, you aren’t required to bank with the same financial institution that holds your mortgage.
What’s the difference between a bank and a mortgage lender?
Not every mortgage lender is a bank, though the two roles often coincide.
According to the Australian Prudential Regulation Authority (APRA), ‘banking business’ is defined by both taking deposits and making advances of money, as per the Banking Act. To conduct banking business in Australia, a corporation needs to apply for an authorised deposit-taking institution (ADI) licence from APRA.
Additionally, money deposited with an ADI in a savings account or a term deposit is guaranteed by the government under the Financial Claims Scheme (FCS). If the ADI was to go out of business, the government would make sure you get your money back, up to $250,000 per person per ADI.
It’s possible to be a mortgage lender without being a bank. Even if a business doesn’t have an ADI license, the right type of Australian Credit License (ACL) from the Australian Securities & Investments Commission (ASIC) will allow a company to function as a mortgage lender.
This is often the case for newer online-only mortgage startups and fintechs, which may specialise in delivering home loans via smartphones apps and similar tech-based solutions. Nonbank lenders may be able to offer more specialised home loans, such as for borrowers in unusual circumstances.
Do I need a bank account from my mortgage lender?
You don’t have to bank with your mortgage lender, but it can make things a little easier. Money earned from your job that gets paid into your bank account can be automatically transferred onto your mortgage each month (or fortnight, or week). You may even be able to have your wages paid directly into an offset account, to help cut your interest costs, and only withdraw spending money as you need it.
Some larger banks also offer mortgage package deals, which combine a home loan with a bank account, credit card, insurance or other financial products. With all of your finances managed in one place, this can offer convenience to many borrowers.
If your mortgage is managed separately to your bank account – such as if you have a home loan through a specialist lender that isn’t an ADI – you’ll likely need to arrange a regular direct debit for your mortgage repayments.
Keep in mind that having your mortgage handled separately to your everyday banking could mean paying two sets of fees – one to each financial institution. Additionally, if there are ever issues with your bank or with your mortgage lender (e.g. if a bank’s computer systems crash), your mortgage repayments could be delayed.
When you’re looking for a home loan, whether you’re buying for a the first time or refinancing, consider contacting a mortgage broker for assistance. These mortgage experts can help you work out if a home loan from a bank or a nonbank mortgage lender may better suit your financial situation and personal goals.