House loan: risk with non-bank online lenders?

Romain on 28/01/2018 - 18:41

Hi,

Sorry if this has already been covered but I couldn't find much in recent topics.
I'm on an owner-occupier loan at 3.85% with ANZ (+400$ per year of package fee). Other banks I checked offer 3.8%, so not really worth the hassle to change.
I can see lenders online such as state custodians or tic toc offering rates below 3.7%, though, and the difference starts to be significant. It looks like the cost of switching would be offset after about a year. Are there good reasons to avoid those?

Thanks in advance

Financial

Comments

  • ihbh on 28/01/2018 - 19:54
    +1

    Make sure the lenders don't effectively have differential rates for new and current customers. The last thing you want is for them to lure you over with a low rate and then increase it later on making them less competitive for you as an existing customer.

    Also, smaller lenders might have funding problems if a liquidity crisis occurs such as during the GFC and might have to raise their rates much more than the majors.

  • kipps on 28/01/2018 - 19:56
    +1

    Not really. Borrowers of owner occupied morgages for consumer purposes have protection under the National Consumer Credit Code irrespective of lender.

    The borrower represents the risk here, not the lender. Smaller lenders might be less flexible though in terms of off-set offerings/etc, and may change rates upwards faster than the big lenders.

    Before you switch make sure you won't be charged a break fee if you're on a fixed rate loan.

    Also to avoid unnecessary effort of switching (i.e. credit check/valuations/discharges/etc) try calling your bank and see if they will match before you go too far.

    • Romain on 29/01/2018 - 17:57

      Yes, I called and was told they would not reduce the rate. The answer from ANZ is that other banks may attract me with a lower rate but then raise it… which is a fair point as some have mentioned here but I'm sure every bank says that about their competitors. And nothing prevents ANZ from raising their rate either.

  • maldo on 28/01/2018 - 21:36
    +1

    Another minor thing to consider, if you plan to have a savings mortgage offset account with a non bank you might not get government protection for the first $250,000 in savings account.

    E.g. loan of $300,000, with $100,000 kept in offset (commonly done for tax purposes incase you decide to turn it into an investment property in future). The 100,000 wouldn’t be guaranteed by government when In the savings offset. It’d only be safe if it was in the mortgage account.

    Happy to be corrected

    • jace88 on 28/01/2018 - 22:09

      That's my understanding as well - offset accounts with a non-ADI are not covered by the Financial Claim Schemes (aka government guarantee). If the lender was to go into distress, your funds in the offset account are just another unsecured creditor from their perspective and would not automatically be applied to the loan balance (i.e. you could lose the $100k in this example and still owe $300k on the loan).

      Also non-bank lenders may be great to sign up with and run everything online, but down the track when it comes time to discharge for refinancing, getting statements, etc… it may be more difficult than you'd expect.

      • kipps on 28/01/2018 - 23:05
        +1

        This is a common belief in OzBargain but is not founded in law. Section 553C Corporations Act applies in insolvency to ensure a right of set-off to ensure no unjust outcomes where there is insolvency. You owe the lender more money than the credit in your offset; not the other way around, so you would not need to call on the government guarantee. You would just have to pay the reduced balance of your loan.

        If, however, things change, such that the net effect is that the lender owes you money, get out of that lender and get one backed by the guarantee.

        • jace88 on 29/01/2018 - 00:11

          Good point.

          I have a limited understanding of this but I wonder if anyone has actually had this happen, and how it worked out. Particularly in instances where the lender securitises/sells the loan separately such that the owner of the mortgage asset is a different entity to the one holding the offset account?

        • Romain on 29/01/2018 - 18:02

          OK, I'm not worried about the lender owing me money, I'm far from that!

  • nige0090 on 29/01/2018 - 19:40

    We almost went with a non bank lender… until we read the contract.

    Mortgagee can put us in default just by not refusing to debit account
    All Insurances must be with an insurer approved by the Mortgagee
    the Mortgagee may assign or otherwise deal with the Mortgage in any way it wishes…
    may obtain at your cost an independent valuation or other report whenever and as often as the Mortgagee decides
    Lender may introduce new fees and charges without your consent.
    etc etc

  • schmucky on 12/06/2019 - 12:22

    Just adding this in for Tic Toc as I did a bit of digging to find this document re the offset account.

    https://www.tictochomeloans.com/media/4197/offset-account-pr…

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