Credit Unions, Building Societies, Customer Owned Banks, Mutual Banks VS The Big 4 Banks. Risks, Cons and Advice?

jorog90 on 10/10/2019 - 14:55
Last edited 10/10/2019 - 16:12 by 1 other user

I am looking at getting a home loan with an offset account.

I am struggling to find information online about what the actual risks and cons are of going with credit unions, building societies, customer owned banks or mutual banks, verses the ever popular big 4 and international banks such as ING and HSBC.

Does anyone know anything about this?
Aside from the obvious cons - they might not have all the same features like multiple offset accounts, award credit cards included etc.

My main concern is situation that might cause me to lose the house, or losing the money in the offset.
What would happen in a financial crisis or in the event that the credit union went under or could no longer service the loans on their books for some reason, etc?

What else is there to consider?

Financial

Comments

  • dcep on 10/10/2019 - 15:17

    yes, you'll lose money in offset for non-ADI lenders

    no, you won't lose your house, someone will buy their mortgage book (or you get your house free - jk, not happening)

    cons, their wholesale funding are short term foreign contract, means they'll hike rates real quick - reactive to global market ; eg. if US Feds rates hike

    but you can always pay discharge fee and refinance away

    • jorog90 on 10/10/2019 - 15:24

      What happens if someone doesn't want to buy their mortgage book?
      Do I get called on to pay the outstanding balance - ergo forcing me to sell the house?

      • dcep on 10/10/2019 - 15:33
        +1

        if no one else buying, i'll bid to buy at $1

        you refinance away if the new owner doesn't want to service your mortgage

    • kipps on 10/10/2019 - 19:09

      You won’t “lose money” in offset if you owe the same legal entity money should it fail in insolvency. See section 553C Corporations Act. It is netted out. I.e. the amount you owe on the mortgage is reduced by the sum in the offset. Your risk only arises if your sum in offset exceeds the sum owed - i.e. the bank is net owing you money.

      • jorog90 on 10/10/2019 - 19:44
        -1

        Say the mortgage is $800,000 and $100,000 in offset, your saying that the $100,000 reduces the mortgage to $700,000 so when it is bought by another lender they are buying a $700,000 debt not a $800,000 debt? So when transferred I have a mortgage of $700,000 and $0 offset.
        The flip side being that I then loose the $100K as cash in the offset?

        • canyoudoitcheaper on 10/10/2019 - 20:26
          -1

          Frankly, by the point ADIs are going insolvent and being taken over by other banks the economy will be in such a shape that the enterprise you work for/own will be broke.
          So don’t worry about it.

        • kipps on 11/10/2019 - 00:14

          The law of assignment is quite complex - there are assignments of certain rights, and then there are assignments where notice is not given to the debtor.

          If you have no notice of any assignment by the time things go belly up you net them out, and the mortgage can be enforced to the extent of $700k, and you refinance to redeem the mortgage.

          You will lose the ability to deal with the $100k in offset but that is far better than having to prove for it in a liquidation (ie get 100 cents in the dollar out of the offset in mortgage reduction as opposed to having to rely upon the ADI government guarantee and otherwise hope for a dividend).

      • dcep on 10/10/2019 - 21:41

        Say on normal case (before insolvent), when lenders repackage & on-sell the mortgage to 3rd party, does the offset account goes with it ?

        • kipps on 11/10/2019 - 00:07

          If you are not on notice of the assignment (equitable assignment only) then the assignee can only take the rights the assignor would have had to recover the mortgage.

          It defies logic that a lender would resell the mortgage but still have an obligation to credit interest for the offset which is not assigned.

          Have you got any real life examples?

  • kahn on 10/10/2019 - 15:41
    +1

    What else is there to consider?

    loose - adjective, the opposite of tight.
    lose - verb, the opposite of win.

  • ribbonsofnight on 10/10/2019 - 20:53

    I agree with the other comments. When borrowing money, you don't need to worry about them going broke. You just need to worry about them raising rates and you not having an option to refinance. This means that borrowing 95% of the value of your house is a lot more risky than 80% because if they raise their rate to 4% p.a. it costs more to refinance. Ideally you want to borrow from a lander that doesn't tend to hike up rates for existing customers but the all do that to some extent.

  • brad1-8tsi on 11/10/2019 - 09:17

    I've been with Qudos Bank since 1989 when it was Qantas Staff Credit Union and it's been great. It was a closed shop back then but anyone can join them now.

    2 mortgages without any hassles and really low fees.
    No fee cards.
    No ATM fees.
    Reasonable interest rates (not amazing) for both deposits and loans.
    Good customer service with a local call centre and informed & empowered staff.

    Cons: limited number of actual branches but I've managed to do most things online or at the post office.

  • Jade81 on 11/10/2019 - 11:43

    My best advice in the current very unusual financial environment and not knowing your situation is
    1. Learn the terminology. I was lucky enough to do a financial lending course but there's books from your library and online sites free.
    Find out what line of credit, principal and interest, interest only, fixed vs variable offset exactly means.
    Ie do you need to protect part of your loan from increasing fees but with interest rates rates so low you wou l why want to lock in all your loan. You u might want to keep part variable which also usually means you can pay in extra.
    Credit cards that come with a mortgage aren't always great. I had one and used a better one instead.
    Then once you've got an idea, yes no and maybe, start comparing loans, otherwise you'll be comparing thousands. I'd pick a mortgage broker and 1-2 lenders to compare. Be aware banks like processing things, most lenders can give you an estimate, ie we can't because

    ING my Dads loan has been with them for 15 years and loves it. I didn't have reliable imternet so i couldnt.

    I've been withBeyond bank since I was a kid butcouldnt get an 80%loan through ttnh em as they were stricter on income, on the upside, youre less likely to get in financial trouble with a lemder whos not trying for amax max loan

    I've been with NAB, ahhhhhhh. Had no after sales service

    I had one good mortgages broker, very patient

    I had broker not so good, was only recommending their own loans with higher commission

    I guess my message is check everything

    What I didn't know to ask was to check their customer service, where have they hidden fees, what can their financial hardship department do it yours in trouble, who are their insurance underwriters if you have mortgage insurance (I had QBE, nightmare). Check internet reviews, anything.

    Then check those policies, ask for a document/pamphlet.

    I know that sounds depressing but you could be talking to these people for 30years. If their promises aren't backed up or their telephones are answered overseas you might t egret the huge excitement of buying your house.

    I currently have ditched t the big banks except for my residual home loan, but much to their disappointment I do all my banking and credits card with an ex credit uni o n, no fees, however many accounts you want, add on higher interest savings

    Hope this helps

    If you only take 2 things away
    1 check everything for yourself
    2 do your homework decide your best option b4 y o u find somewhere so your not rushed

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