To bank or not to bank? That is the question. When shopping for a home loan, it’s important to consider all lenders and financial institutions.
How many times have you heard ‘Oh man my bank is killing me with these fees!’, or ‘I wish I could switch banks!’. This is where a non-bank lender could step in for refinancing your home loan.
Only in recent years has non-bank lending really taken off, as consumers look for alternatives to the old school banks for their home loan needs. However, non-bank lending has been around for about 40 years now.
Before that, you used to have to don your best suit and schedule an appointment with a bank loan manager to apply for a home loan.
It sounds like a bit of a funny term, but non-bank lending is simpler than you think. A bank has two sides, lending and depositing. By focusing only on lending, a non-bank lender can deliver some key benefits, which we’ll get into.
A bank generally makes money by making loans more expensive than the interest it pays on deposits - called the ‘net interest margin’. So, put very simply, if a home loan is sold at 3.00% p.a. and a savings account is 1.00% p.a. the net interest margin is 2.00%.
This is to fund overheads and keep shareholders happy. And banks generally have a lot of shareholders, and a lot of overheads - how else do they fund those shiny yet hollow branches?
Non-banks don’t have to worry about that, which allows them to focus only on lending. loans.com.au is a non bank, digital lender.
So, without deposits, how does a non-bank get its money? A non bank lender sources its money via a variety of wholesale funding measures, but mainly through ‘securitisation’.
In this, mortgages are pooled together and investors invest in them for a return. The margins on securitised assets are generally much thinner, and investors generally accept lower rates of return. The end result can mean a cheaper home loan for those shopping for a new home or refinancing.
Banks are what’s called an ADI - an authorised deposit-taking institution. This means a bank can offer transactions and savings accounts. It is common for customers to head to one bank for all their financial needs, including bank accounts, home loans, credit cards and more. However, this works in the banks' favour - by making it harder for the customer to ‘break free’ of the brand - and there is not as much incentive for the bank to offer competitive products.
However, being a 'non-bank' does not mean a non-bank lender cannot offer accounts that act like transactional account. loans.com.au offers a offset sub-account, which provides a Visa debit card for borrowers to access additional home loan repayments made to their offset sub-account.
In comparison with banks, non-bank lenders can offer higher service levels, in addition to competitive products with market leading rates and low set up and ongoing costs.
Non-bank lenders are often more flexible meeting your needs and they may attempt to accommodate all scenarios and situations.
For borrowers, it isn’t just about the best interest rate and features, it’s also about finding a lender who can offer personalised service and special attention to ensure that consumers are valued and happy.
Being a non-bank lender doesn’t mean a financial institution is unregulated - quite the opposite. Both banks and non-bank lenders must comply with laws and industry codes that affect banking and finance, particularly the National Consumer Credit Protection Act.
loans.com.au also focuses on safer borrowers. Many home loans require at least a 20% deposit - or 80% LVR - with some others requiring at least a 10% deposit, or 90% LVR.
The good news is applying for a home loan through a non-bank such as loans.com.au is entirely digital. Pre-approval can take as little as two minutes and is done completely online - no branch visits required.
loans.com.au has a full complement of customer service options available, including online application forms, online chat, and our call centre - 1300 472 195.
A non bank lender mainly sources its funding through ‘securitisation’. In this, mortgages are pooled together and investors invest in them for a return. The margins on securitised assets are generally much thinner, and investors generally accept lower rates of return, with the cost savings passed onto the consumer through a competitive home loan rate.