SMALL LENDERS VS BIG BANKS: DOES SIZE REALLY MATTER WHEN IT COMES TO HOME LOANS?
- Posted By Prince Lakshman
For first time home buyers, navigating the home loan landscape is no walk in the park. The primary reason being that the mortgage you get has to reflect your personal circumstances and financial objectives.
But do you have to choose one from the big four, or is it better to opt for small lenders?
With so many things to consider like interest rates and providers offering different products, you need to do your due diligence before making this big decision of where to secure your home loan.
FEES AND OFFERS
There are upfront costs involved and the fees vary from lender to lender. Currently, the average upfront fee for the big four banks is $520. This is quite less than the market average of $670.
“There’s often an assumption that smaller lenders have higher fees, but in certain cases I’ve found the opposite,” Aaron Christie-David, co-owner of mortgage broking firm Atelier Wealth said. “Investigate a number of options on the market to make sure you’re getting the best deal.”
You need to first ask for introductory offers, such as cashback or frequent flyer points and think of them as part of the bigger package.
INTEREST RATES
It is not enough to simply choose the lender with the lowest interest rate. There are other important things that you need to evaluate using a comprehensive criteria.
“A lot of lenders will dangle low interest rates to attract customers,” explains Christie-David, “but are then unable to tackle the huge number of applications they receive, meaning it can take a long time to get your loan, scuppering purchase plans.”
The fixed interest periods for loans also differ between big banks and small lenders. For the four big banks, the average allowable extra payments is a little lower – $16,250 compared to the market average of just under almost $21,800.
CUSTOMER SERVICE
“Since the royal commission, we’re seeing lenders at every level trying to lift their customer service standards,” Christie-David said.
“However, some of the smaller, challenger lenders are focusing on customer service as a real point of difference and have created slick online experiences as well as attentive call centres to take care of their customers.”
Big banks do have an advantage when it comes to in-person service since they have an extended branch network that caters to face-to-face interaction.
“This is particularly relevant to first-time home buyers who often prefer a personal touch when making such a big purchase.”
SECURITY
When it comes to financial matters, it’s human nature to prefer establishments that offer utmost security and hassle-free service.
“There are rules and checks in place to make sure your money is safe. Banks, credit unions and building societies are authorised deposit-taking institutions which means that any deposit they take under $250,000 is guaranteed by the government,” explains Mickenbecker.
“Remember that non-bank lenders don’t have a government guarantee on deposits, but, like banks, are governed by ASIC’s responsible lending rules.”
Before settling on a lender, do some research on both the company itself and any other companies within their group, looking out for potential red flags.
“Remember that non-bank lenders don’t have a government guarantee on deposits, but, like banks, are governed by ASIC’s responsible lending rules.”
Before settling on a lender, do some research on both the company itself and any other companies within their group, looking out for potential red flags.
In the end, the better option for your home loan depends on what suits each individual. Keeping an open-mind and doing your research to find a loan solution that fits your situation will work best for you.
“Smaller banks can sometimes offer lower interest rates, whereas the big banks will always win when it comes to special promotions. Take your time to make sure you’re comfortable with your choice.”