Digital loans compared to regular loans - Mortgage Domayne

Digital loans compared to regular loans

November 25, 2023

Welcome to the finance update for the week ending 25 November, 2023.

More of Australia’s biggest lenders are now part of the Australian Government’s Home Guarantee Scheme with Westpac announcing this week that St.George, Bank of Melbourne and BankSA have joined the scheme, which will increase competition in the this segment of the market which is good for borrowers.

This news came only days after the Queensland Government announced the doubling of their First Home Buyer grant for eligible first home buyers. Whilst we think this increase is a great initiative, the price cap will mean that many people looking to buy in Brisbane could miss out because the cost of land and construction often exceeds the $750,000 limit in most metro areas.

In this week’s newsletter, we take a look at the difference between digital home loans and regular home loans.

What is a digital home loan?

A digital home loan offering differs from a regular home loan by leveraging technology to streamline the entire mortgage process. Digital home loans typically provide a fully online and automated application process, allowing borrowers to apply, submit documentation, and track their loan status through a digital platform and/or a mobile app.

They can achieve faster approval times, leveraging algorithms to assess creditworthiness and determine eligibility swiftly.

What are the cons of digital home loans?

While digital home loans offer some advantages, there are some potential drawbacks to consider:

Limited Personal Interaction: Digital home loans may lack the personal touch that some borrowers prefer. The absence of face-to-face interactions with a broker might be a disadvantage for those who value direct communication and guidance throughout the mortgage process.

Technology Challenges: Some individuals, particularly those less familiar with digital tools, may find navigating online platforms challenging.

Security Concerns: The reliance on digital platforms raises cybersecurity concerns. Borrowers may worry about the safety of their personal and financial information, especially given the prevalence of cyber threats such as data breaches and identity theft.

Complexity for Unique Cases: Digital systems may struggle to handle complex or unique financial situations. Borrowers with unconventional income sources or complex financial portfolios might find it challenging to fit within the automated algorithms used for digital assessments.

Lack of Flexibility: Automated processes in digital home loans might be less flexible in considering individual circumstances. Traditional lenders may have more room for negotiation and customisation based on a borrower’s unique situation.

Limited Product Understanding: Some borrowers may feel that the digital process doesn’t adequately explain the intricacies of various mortgage products. The absence of direct communication may result in a lack of clarity about terms, conditions, and potential hidden costs.

While digital home loans offer efficiency and convenience, these potential drawbacks highlight the importance of considering individual preferences and circumstances when choosing between digital and traditional mortgage options.

Any changes in interest rates from last week are highlighted in orange.

Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.

Variable

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.

1 Year Fixed

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.