When you’re looking to purchase a home using finance, one of the first decisions you’ll face is who to borrow from.
The home loan market now has a wealth of options, from traditional bricks-and-mortar institutions like the big four banks to online lenders like Well Home Loans.
The online shift
As competition intensifies in the mortgage space, online lenders are snagging a greater market share with both new borrowers and refinancers – in part due to their low-cost model.
Without the expense of having to maintain costly branches, online lenders can sometimes afford to give borrowers lower interest rates and lower fees.
However, each lender comes with a distinct set of pros and cons, and the decision of which to choose will come down to a borrower’s individual circumstances and preferences.
Below are some of the pros and cons of choosing an online mortgage lender.
Pros of borrowing with an online lender
- Cost: With fewer overheads, such as the cost of servicing branches, online lenders often have competitive interest rates and lower fees than their bricks-and-mortar counterparts. This is a major drawcard for some cost-conscious borrowers.
- Technology: Given the access point to smaller lenders is online, there is often a high investment in the user experience, which means a simpler application and loan servicing process when compared to the traditional model.
- Customer service: Newer market entrants have to work harder than traditional players to win and keep borrowers, which means their customer service offering may be superior to that of more established institutions.
Cons of borrowing with an online lender
- Branch access: Online lenders don’t have branches. While branch access is becoming less common and banks are now increasingly closing branches, online lenders won’t be right for borrowers who want face-to-face service.
- History: Some borrowers like the idea of banking with a well-established operator with decades of experience or a long-standing ‘name’ in the mortgage market. If that’s the case, a newer online lender won’t be the right fit.
- One-stop-shop: Some borrowers prefer all of their banking – including savings accounts and credit cards – to be in one place, with a single provider. Online lenders often specialise in one or two areas and won’t provide the full catalogue of banking services that traditional banks do.
Some potential borrowers may be worried that a smaller, online lender is ‘riskier’ than a bigger bank in the case of a market downturn. However, it’s actually the lender that carries that risk, rather than the individual borrower, as the lender is the one lending the money.
Consider individual circumstances
There’s no such thing as the perfect lender for every borrower, because everyone’s situation is different. An online lender will be a great fit for some borrowers, but not for others.
When comparing home loan lenders, it’s important to make sure you get detailed information, so you can make apples-for-apples comparisons between different institutions.
Finally, while assessing the pros and cons is an important exercise, it’s critical to assess the options against your own circumstances and decide what’s right for you.