I have a mortgage and when reviewing comparable rates I see many offers considerably below what major banks are offering. What are the risks associated with going with a second-tier or online based home loan? They offer lower rates so why doesn't everyone use them? What happens if they go broke?
There are no risks in using a 2nd tier/ non bank lender. They are governed by the same rules and regulations as the majors so it is highly unlikely that they will go broker. Note that you are borrowing their money; not investing money with them.
Message me or feel free to call me on 0414 727 308 if you want more info.
Sam is spot on, no risks in using them, in fact majority of the loans I put through these days are with the likes of a ME Bank or a Bankwest. Obviously only downside with some of the 2nd tier lenders is you don’t have a branch to walk into. Also to answer your question, it is very rare for a reputable 2nd tier lender to go broke but Incase they did their debt will be bought by someone else, more than likely one of the majors so it won’t affect you at all.
Happy to answer any other questions you may have or if you would like to call me at anytime please don’t hesitate.
Great question. During the GFC the second and third tier lenders were really tested and we were able to see what happens when investors lose confidence in both the Major Big 4 Lenders and the second and 3rd tier lenders.
For most second tier bank lenders like AMP & St George for example it was simply the case that they restricted new lending. As Sam points out, they are governed by the same rules and regulations as the major lenders so at the end of the day are essentially backed by the government and its guarantees.
For some third tier lenders as the deposits were recalled i.e. "they were going broke" they simply raised interest rates to the point that most people refinanced for a lower interest rate or they sold the loans to another lender. For example as was the situation with Wizard Home Loan client who essentially had their loans sold / refinanced to the CBA
As a Mortgage broker I am slightly biased against online lenders because I find most are very transactional. That is there is not a lot of service or education around the loan offering that you normally get with a mortgage broker.
As far as their potential to "go broke" given they are mostly the no frills/ no service face of major lenders it is highly unlikely. Having said that there is always the possibility that the online lender will suddenly withdraw from the market if their low service model is not attracting enough customers and you are left with minimal assistance with account enquiries and changes.
In my humble, somewhat biased opinion, I would always tend to recommend you see a mortgage broker who can help educate you on the best way to take advantage of the features and benefits of loan product rather than just choosing the lowest cost options.
I hope this helps
Why doesnt everyone use them?
Many borrowers pay the "lazy" tax; some traditionalists prefer 'brick & mortar' establishment where they have walk in comfort; borrower's computer literacy; language barriers etc .. the list goes on.
It is not important why "others" dont use them, it is about finding a lender and a product that suits you. As Sam represented, they are all governed under the the same regulations, arguably the Big 4 have more funds to pay fines (*wink), establish local branches and pay for staff and marketing. Smaller lenders dont market as aggressively nor do they operate under the same business model, you can argue that they pass the savings to you in the form of reduced rates & service, but in reality, "what service do you want from a Lender" (as opposed to where you conduct your day to day banking).
What happens if they go broke?
Well you are borrowing money from them not investing money in them right? Besides, in Australia, the first 250K of each person's deposit in ADIs are guaranteed by the Govt. Now, if your Lender went broke, the likely scenario is that your debt will be sold, it is unlikely that your loan contract will change as there is no grounds for it, so you will just be paying to another financial institution. Besides you can also refinance, which just means the balance of debt is repaid to the existing lender and you set up a new loan with another lender.
When I borrowed a small loan at a home loan rate with cua I feel so at ease with them, because they still do checks about you through other They are great to be with. I have know problems with 2nd or 3rd tier lenders. You do everything by phone and online as well send documents via email or post no hassles they are there to help.