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Will a digital home loan offer lower rates than the big four banks?

Will a digital home loan offer lower rates than the big four banks?

The Reserve Bank of Australia has hiked the cash rate yet again this month, bringing it to 1.35%, and mortgage holders will no-doubt be feeling the pinch. If you’ve been considering refinancing to make your repayments more affordable, you may want to compare digital home loans.

In a higher-rate environment, hunting down the most competitive home loan rate can mean the difference between paying hundreds or thousands more in interest charges. So, can a digital home loan offer lower rates than your traditional loan from a big bank?

Digital home loans vs big banks: who offers lower rates?

While there is more to a home loan than the interest rate offered, it’s still worth factoring it into your loan comparison. Particularly if you’re considering refinancing to a lower rate lender to give yourself some relief from your growing mortgage repayments.

A digital home loan refers to a mortgage where the application process is operated entirely through an app. Sometimes referred to as neobanks, a digital home loan is, as the name suggests, entirely app-based.

RateCity’s database shows that on average a digital home loan may offer a lower comparative home loan rate than the big four banks. The lowest variable home loan rates on offer from the big four banks for are as follows:

Lowest big four bank variable rates (paying principal and interest)

Big 4 BankLowest variable rateLowest investor variable rate
CBA

2.79%

3.09%

Westpac

2.64%

3.04%

NAB

2.94%

3.54%

ANZ

2.79%

3.44%

Average

2.79%

3.28%

Source: RateCity.com.au. Data accurate as of 04/07/2022.

When you look at the lowest rates offered by similar home loans from digital providers, you can see that, yes, those eligible for these home loans may be offered a lower interest rate.

In some instances, the digital home loan offers a saving of 22 basis points for your home loan repayments for owner-occupiers and 49 basis points for investors switching from a big four bank rate.

Digital home loans vs big four: lowest variable rates (paying principal and interest)

Lender nameLowest owner-occupier variable rateDifference to big 4 averageLowest investor variable rateDifference to big 4 average
Athena Home Loans

2.64%

-0.15%

2.94%

-0.34%

Nano

2.74%

-0.05%

3.04%

-0.24%

Tic Toc

2.59%

-0.20%

2.89%

-0.39%

Unloan

2.64%

-0.15%

2.94%

-0.34%

loans.com.au

2.60%

-0.19%

2.89%

-0.39%

ubank

2.64%

-0.15%

2.89%

-0.39%

OneTwo Home Loans

2.59%

-0.20%

N/AN/A
WLTH

2.69%

-0.10%

3.09%

-0.19%

homeloans.com.au

2.64%

-0.15%

2.79%

-0.49%

Yard Home Loans

2.64%

-0.15%

2.94%

-0.34%

Well Money

2.57%

-0.22%

2.92%

-0.36%

Source: RateCity.com.au. Difference based on average of the four lowest big bank rates on offer as per above table.

The latest data from the Reserve Bank of Australia shows that in April 2022, the average home loan rate for existing customers was 2.86%. And when you factor in three cash rate hikes of 1.25 percentage points in this time, this could mean the average interest rate Australians are paying sits closer to 4.11%

By switching from a home loan rate of 4.11% to any of the lower rates offered by a digital home loan, you may be able to give yourself a rate cut and potentially save hundreds in interest charges.

The benefits and disadvantages of a digital home loan

Before you sign on the dotted line, it’s worth understanding why digital home loan rates may be lower on average than the lowest rates offered by the big four banks. Put simply, the biggest benefit of a digital home loan is that it is entirely app-based, meaning it has considerably less overheads than a big bank.

By having no branches, for example, and keeping operations slimline, a digital home loan lender may be able to pass these savings on to customers in the form of lower rates and lower fees.

However, one of the biggest barriers for homeowners to make the switch to a digital home loan can be the brand recognition and the sense of security a bigger bank may offer. Australia’s big four banks have a greater presence for banking customers, and this means that many feel it may be more secure to keep their biggest debt with a big bank

It’s worth keeping in mind that some digital home loans are backed by the big four banks. For example, unloan is a new digital home loan offering from Australia’s biggest bank, Commonwealth Bank. Further, ANZ’s innovation unit, ANZi, helped to create the digital home loan provider, OneTwo , and Tic:Toc gets its funding from Adelaide and Bendigo Bank.

If you rely on face-to-face customer service, or are just not that tech-savvy, an app-based home loan application process may not suit your needs. You may be better off seeking out a home loan from a provider that offers a branch near you, or more accessible application platforms.

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

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