Bank, Broker or Credit Union? Who will you choose to have the honour of lending you money? Lending is big business and lenders want your interest repayments in their pockets. When I ask families who they borrowed from and why, I’ll often hear them say, ‘Oh, we already had our banking with them and it was easier,’ or ‘That’s where we have our existing home loan, so we are just going to stay.’
Why not consider doing your homework and starting again? Find out who will offer you the best deal, not only in terms of interest rates, but also conditions. Make sure you’re looking at comparison rates, which are a true indicator of what your interest rate really is, as they incorporate fees and hidden costs.
Types of lenders - Choose the right one for you
You have a few options when it comes to the type of lender you’ll borrow from. Let's look at three here:
- Mortgage brokers
- Credit unions
Unlike banks, credit unions are not-for-profit organisations. They are run specifically to benefit their members. You are generally required to become a member when you take out a loan, sometimes for a small fee, which can be as little as $10.00. Because they are run to benefit members, they can usually offer more competitive interest rates, lower fees and more intimate customer service. Like banks, they are also governed by the APRA code of practice.
Credit union lenders generally offer the following benefits:
- More competitive interest rates
- More flexible lending criteria
- Lower set-up costs and ongoing fees and charges
- A strong focus on customer service and more flexibility to tailor the loan to your particular circumstances
- The ability assist you even if you have had a loan application rejected in the past
A mortgage broker seeks, finds and compares home loan products that will be best suited to your needs. They are the go-between agent between the borrower and the lender.
Mortgage brokers offer the following advantages:
- They may save you time by doing the legwork for you.
- They may have access to rates and terms you might not have known about.
- They negotiate the rate and terms on your behalf.
You may have heard what we commonly refer to as the ‘Big Four’ banks and it’s likely that you already have a transaction account with one of them. But that doesn’t mean that you have to take your home loan out with them; you can explore your options. While the Big Four banks offer a wide range of products, such as loans, credit cards and transaction accounts, their interest rates can be less competitive due to their popularity. Banks operate for profit.
Banks offer the following advantages:
- They are well-established and hold the largest share of the home loan market.
- You may already be a customer of one of these institutions and this offers easier access.
- The Australian Prudential Regulatory Association (APRA) holds these institutions accountable for all financial promises they make.