Choosing a home loan can often be a stressful time, made difficult with confusing terminology and mathematic calculations for an uncertain future. Not to mention the long-term commitment that you are making. That is why it is crucial to take the time to research and work out exactly how much money you need to borrow, the length of your loan and how much you are going to repay including interest. We would recommend applying for the shortest loan term you can afford to reduce the amount of interest owed.

Research can save you thousands throughout your repayment period depending on whether you go with a fixed or variable interest rate. Knowing if your interest rate is low in the current period is only looking at half of the problem, you need to compare it to the trajectory of interest rates and forecast the market. If you are locked into a fixed interest rate that has become uncompetitive, you may be forced to pay a break fee to renegotiate your interest rates, chasing lost ground. Once you have decided all that, it can still be difficult to know if the best option for a lender is a big bank or small online alternative.

Big Banks

Currently, the big four banks in Australia hold approximately 80% of the home loan market. Consumers are often looking for a good home loan rate and complete great amounts of research to achieve this. Big Banks are a good option if you have experience and knowledge of what is a competitive rate and an understanding of how much you will need to pay. Banks also have access to plenty of resources, which means quicker approval times, branches and staff across the country and reward programs. This means that Big Banks are leaders in economic growth, able to influence many employment opportunities and loan in times of crisis. All of this creates a large amount of trust and stability for those who are uncertain on the best approach, studies show that 37% of Australians who have taken out a home loan with a lender in the last 12 months chose the lender based on an existing relationship..

Small Online Banks

Small Online Banks and other Online Lenders can rely on the advantages that technology provides to offer a more streamlined service. This does come with some barriers of entry and challenges, one of the most prominent is visibility on the rates and fees offered. Small Online Banks might look to take advantage of home loan comparators as a way to get eyes on their low fees. This would create more upside for consumers as a competitive market offers improved services and rewards. The secret to success for consumers looking for an alternative is customer-oriented services, loyalty programs and of course, competitive rates.

How Covid-19 has affected rates

Recently, because of the Covid-19 pandemic, the RBA cut the cash rate to just 0.10%. This means that money can be borrowed at the lowest interest rate in Australian history. Unfortunately for consumers, the lender has no obligation to pass on the cash rate. This creates a potential market where home loan competitors can offer lower fees, be more flexible with lending, and offer convenience for customers with personalised customer service.

The results of the turbulent times created by the Covid-19 pandemic are yet to play out. Currently, the strategy put forward by the government seems to be to stimulate investment, meaning it is a good time to invest in property. Therefore, it is important to pay attention to what is happening in the world, the economy, and the trends of the housing market it is. With a middle class that is more technology-focused, online lenders can gain market share with innovative solutions to problems such as increased waiting times for loan approval due to a rise in applications with big banks.