- Online home loans are those originated, processed, and approved entirely online
- Such loans can be provided by online lenders backed by banks as well as specialist online non-bank lenders
- Online lenders can offer competitive rates due to lower overheads, but rates still vary based on credit, loan type, and market conditions
- Borrowers should carefully compare fees, closing costs, and terms, not just the interest rate, when evaluating online options
As the name suggests, an online, or digital, home loan is one that's available online, sometimes exclusively online.
From the application process right through to loan funding, all aspects are completely digital with no requirement for physical documents or the need to visit a bank branch.
If you are considering an online home loan, it’s important to first understand how these loans work before signing on the dotted line.
Who offers online home loans?
Many banks, as well as specialised digital lenders, offer online home loans. Some lenders deal only in online loans while others include them as part of their suite of financial products.
The table below compares some of the most competitive interest rates on the market.
Lender Home Loan Interest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees Max LVR Lump Sum Repayment Extra Repayments Split Loan Option Tags Features Link Compare Promoted Product Disclosure
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How does an online home loan work?
Online home loans are backed by digital systems and processes, with technology allowing loan decisions to be made faster than home loans processed the traditional way.
Given that online home lenders aren't funding bricks-and-mortar bank branches, their lower overhead costs typically see online lenders offering lower interest rates.
However, many online-only lenders tend to have stricter lending criteria than traditional banks.
Are online mortgage lenders safe?
Banks and lenders offering online home loans in Australia must adhere to rules and regulations designed to safeguard borrowers.
If an online lender is also an Authorised Deposit-taking Institution (ADI), meaning they provide savings accounts and term deposits in addition to mortgages, they are required to comply with Australian Prudential Regulation Authority (APRA) guidelines.
If an online lender only offers mortgages, they are still obligated to follow regulations outlined by the Australian Securities and Investments Commission (ASIC).
If you are unsure about the safety of online home loans, banks and lenders offering credit products must provide access to their Australian Credit License (ACL). If you encounter any issues with a lender, you can contact the Australian Financial Complaints Authority (AFCA).
How to apply for an online home loan
The process of applying for an online home loan is near identical to applying for a loan through a traditional bank.
It will requiring borrowers to:
- prove their identity
- show proof of income
- provide details of assets and liabilities
- meet debt-to-income ratio requirements and other lending criteria
Where differences can lie is in submitting paperwork and tracking the loan application process which can be done via an app or website, depending on the bank or lender.
Online home loan applications are relatively straightforward. However, to make the application process seamless, it is important to have scanned copies of documents on standby, including:
- Personal information (driver’s license, birth certificate, Medicare card)
- Pay slips
- Bank and credit card statements
- Tax returns
- Information surrounding any outstanding debts
The type and the number of documents required will vary depending on the bank or lender.
Pros and cons of an online home loan
Pros
Convenience: Online home loans replace physical paperwork and scheduling visits to brick-and-mortar bank branches. They also offer the ability to manage your loan through an online portal or mobile app, with the ability to speak with a customer service representative either online or over the phone should should difficulties arise.
Lower rates and fees: Online home loans generally have lower overheads, meaning banks and lenders can offer more competitive interest rates to bring customers on board. Paying less interest and fees has the potential to save you thousands over the life of your home loan.
Fast: When all documents are in order and there are no difficulties in the application process, online home loan applications can be approved by some lenders from as little as 30 seconds.
Secure: Online home loans are subject to laws and regulations and are backed by digital systems and processes to ensure your information remains secure.
Cons
Strict lending criteria: Banks and lenders will generally have stricter lending criteria for online home loans, meaning they are less likely to approve loans with greater perceived risk. Applicants may find it more difficult to secure a home loan online if they have loan-to-value ratios greater than 80%, low credit scores, current debts, or are wanting to purchase homes in regional locations.
No face-to-face contact: Online home loans can be offered by lenders without brick-and-mortar branches, meaning they they may be alienating for those who prefer human interaction or are not tech-savvy.
Limited features and products: Many lenders offering online home loans will generally only operate online, meaning they may not have other products available, including deposits, personal loans, and credit cards. This is generally the case if the lender offering the online home loan is not an ADI.
Savings.com.au’s two cents
For convenience, flexibility, and speed in approving your home loan application, online home loans are becoming the go-to for Australians looking to take out a new home loan or refinance.
Traditional brick-and-mortar banks have taken notice, pivoting resources to cater for this demand with CommBank launching unloan, ANZ offering ANZ Plus, and NAB taking the reins of ubank. Many established banks also offer online-only loans, some with different rates and features than their other loan products.
Online lenders generally require all the same documents and their loan processing will need to tick much the same boxes as traditional banks do. Because they have fewer overheads and are often looking to carve out a market niche, they may offer more competitive interest rates.
As with any financial decision, it’s important to account for your own financial position, interest rate, fees, and associated features that come with an online home loan before signing on any dotted lines.
Online lenders vs banks
Online banks may be better if:
- You're chasing the lowest interest rate: Because they have few overheads, online lenders can offer considerably lower interest rates than traditional banks who have to finance branches and the staff to service them.
- You want a fast application and approval process: New digital technology can be much faster than traditional or legacy processes for loan processing, but generally only if there are no issues with your application.
- You have a straightforward borrower profile: If you are a wage-earner with a trouble-free credit history and have a decent deposit, you are likely a good candidate for speedy loan approval through an online lender.
- You want the serviceability buffer to be more lenient: Some online-only, non-bank lenders will not be bound by the serviceability buffer imposed by the banking regulator. Some online-only lenders fall under the regulatory umbrella of ASIC and can apply discretion that may boost your borrowing power.
Traditional banks may be better if:
- You prefer face-to-face service and support: Traditional banks are better set up for offering in-person, personalised service.
- Your financial situation is complex: Uploading a non-standard financial set-up is likely to trip up a digitally driven process so you can forget a fast approval time. If your circumstances and application are outside the norm, a traditional bank will likely have the staff and flexibility to consider your application and tailor a finance solution.
- You want to do all your banking with one institution: Most banks offer a full suite of financial services including savings accounts, term deposits, offsets, and credit cards. Some of these facilities can be easily bundled into home loan packages which may suit the needs of some borrowers.
- You feel 'safer' with a big brand bank: While all lenders must comply with rules and regulations, some borrowers might feel more secure opting for an established brand.
Online lenders vs mortgage brokers
Online lenders may be better if:
- You're after speed and convenience: If you've done your market research, found an online home loan that meets your needs, and are confident with technology, an online lender can provide a quick and easy home loan (depending whether you meet their lending criteria of course).
- You're looking to keep costs low: Online home loans will still come with some associated costs (government-levied charges at least) but they may be lower than other home loan products on the market that brokers can access. In some cases, interest rates can be higher for broker-written home loans with lenders building in some cushioning for the trailing commissions that brokers will continue to receive for the life of the loan.
- You prefer to deal with the lender directly: If you feel comfortable speaking or corresponding with your lender directly, you likely don't require a middle person.
A mortgage broker may be better if:
- You don't have time to research the market: If you're time poor, brokers can do the legwork for you. They should know what's available on the market and are obliged by law to come up with the loan that serves your best interests.
- You're not confident in understanding financial terminology and how it applies to your situation: Although financial matters affect everyone to some extent, if you're not financially literate and feel overwhelmed in navigating rates, home loan features, application requirements, and technology, a mortgage broker may be a better option for you.
- Your financial situation or needs are outside the norm: If you're not a wage-earner, have a chequered financial history, or are wanting to purchase a non-standard property, a mortgage broker may be able to help steer your way to finding a home loan that better caters for your circumstances.
What to know when you use a mortgage broker
While many brokers don't charge borrowers for their services, they typically get paid via lenders - generally in the form of upfront payments and/or ongoing trailing commissions for the term of the loan. These costs to the lender can be built into the interest rate the borrower is paying which is not something online lenders have to account for in the rates they can offer.
As well, brokers generally deal with a panel of lenders rather than the entire market. Ideally the panel should cover a wide range of bank and non-bank lenders. Brokers are obliged to reveal their 'Credit Guide' or it pays ask them directly about the size of their lending panel.
A good broker will take into account your individual financial circumstances and needs in 'matching' you with a home loan product. However, it's always worth comparing the loan with similar loans available on the market to check the interest rate is competitive and the loan is offering features that best suit your needs.
Frequently Asked Questions
This will depend on the lender but there are certainly online lenders who offer pre-approvals.
As you'd expect, this process is done entirely online with the potential borrower supplying their information and uploading required documents.
Online pre-approvals tend to be quickly processed but it's worth remembering, pre-approvals are not a guarantee the lender will lend you the pre-approval amount. They will require further information before issuing final approval.
Yes, online lenders are generally safe and are required to comply with responsible lending laws and meet data privacy standards.
Bear in mind, some online lenders are backed by the big banks so offer much the same protections as the well-established brand names. All are subject to regulation and oversight to ensure they meet Australian standards and consumer interests are served.
If in doubt, you can search ASIC's Professional Registers to be sure the online lender you are considering has an Australian Credit License.
First up, some online lenders are brand names belonging to big banks. Any authorised deposit taking institutions (ADIs) are regulated by the Australian Prudential Regulation Authority (APRA).
Other non-bank online lenders fall under the regulatory umbrella of the Australian Securities and Investments Commission (ASIC).
Any organisation that provides credit products must be licensed and operate under certain rules, including meeting responsible lending guidelines. These provide a basic standard that both banks and online lenders must comply with.
In the event an online lender is acquired or goes out of business, it is highly likely its lending book will be taken on by another lender.
If that happens, your existing home loan arrangements may be honoured by the new lender or tweaked to fit in with the new lender's policies and preferences. Bear in mind, amalgamations and mergers among banks and authorised deposit taking institutions (ADIs) are relatively common.
In the unlikely event an online lender was to fold, administrators would sell its existing loan book to a new lender. For borrowers, there may be some uncertainty during the transition period but their loan would certainly not disappear.
Non-banks offering linked offset accounts to their home loans will generally team up with an ADI so they can provide the facility. All ADIs are covered by the federal government's Financial Claims Scheme (FCS) that guarantees deposits up to $250,000 at each ADI.
Many businesses - big and small - can be at risk of data breaches. Unfortunately, there is no way to guarantee your online information will be safe from a cybersecurity incident.
The best you can do is ask your own questions about the lender's data security measures. You may want to check which security systems it has in place, whether it requires multi-factor authentication, and what policies it has around protecting customer data.
Australia's eSafety Commissioner provides a list of guidelines on online banking which may provide some useful advice.