Familiarity can be costly when borrowing: Mortgage Choice CEO

Taking out a home loan is a big financial decision. This is why, when we recently asked 1000 Australians about their most recent home loan, more than three-quarters said they took out their last home loan with a lender they’d already heard of. Just 24 per cent chose a lender that was new to them. Could our preference for familiarity be holding us back?

In Australia, the major banks are household names. For many Australians, one of the big four was their first interaction with a bank via a school banking program. When you consider that these banks are more likely to have a physical presence in many communities than other lesser-known lenders, it’s understandable why so many borrowers see them as the only option. But there are quite a few reasons why it can pay to look beyond the majors.

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Speed

In a competitive property market, getting your home loan approved quickly can mean the difference between securing your dream home and missing out. Smaller lenders can be faster to approve a home loan application than bigger banks. Many smaller and non-bank lenders have simpler, more agile team structures and have built their systems on newer technology, which can lead to quicker decision making when assessing and approving a home loan application.

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Rate cuts

Many smaller lenders are also faster when it comes to passing on the Reserve Bank cash rate cuts. For example, Athena Home Loans, the lender behind the Mortgage Choice Freedom loan products, has passed on the last three RBA rate cuts in full and on the same day as announcement.

Flexibility

Non-bank lenders have different regulatory requirements than the major banks, giving them more freedom to provide tailored solutions for borrowers who may not fit a larger bank’s credit policy. For example, if you’re self-employed, run a small business, or work freelance, a non-bank lender might be more understanding of irregular income.

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Trying to navigate the home loan market alone can be overwhelming, which is why many borrowers fall into the familiarity trap. That’s where expert advice, and the choice a mortgage broker can offer, become a borrower’s secret weapon.

A mortgage broker can access thousands of loan options from a range of different lenders so you can weigh your options and find a lender that truly fits your needs.

How costly is it?

On a loan balance of $500,000 with an 80 per cent loan to value ratio on a 30-year term, you’ll save over $170 a month, and over $2000 a year with the Freedom product.
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Now, let’s say you were with the major lender and decided to swap to Freedom to access the lower interest rate – by switching loans and making the minimum repayment ($2899 per month), you would save $66,420 over a 30-year term.

If you switched and made higher repayments ($3083 per month, the same minimum repayments as the major lender) you would save $155,117 over the life of the loan and pay off your loan 50 months sooner.

Anthony Waldron is CEO of Mortgage Choice

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