All Lenders Not The Same

Not All Lenders are the Same 

There is a widely held view that all banks are the same, offering pretty much the exact same products with the exact same requirements, and that there’s little competition in the lending market.

That mistaken belief could be costing borrowers thousands of dollars.

No matter what you’re looking for – a car, home appliances or furniture – it’s always a good idea to shop around, compare deals and make sure you’re saving money. It’s no different in the lending market.

When you make comparisons between lenders, it quickly becomes clear they’re not all the same.

Credit policy

One of the more significant differences between lenders relates to credit policy.

On the upper end of the scale, there are lenders borrowing an LVR (Loan to Value ratio, or value of the property) of 88 per cent, requiring a deposit of 12 per cent, compared with a lender at the other end of the scale that is requesting only a 5 per cent deposit.

If you paid a 12 per cent deposit on your dream home valued at $500,000, for example, the lender would require $60,000 – versus $25,000 if you were required to pay 5 per cent of the property’s value.

Also, once the LVR is more than 80 per cent, the LMI (Lenders Mortgage Insurance) premium kicks in – and this, too, varies between lenders.

Borrowing capacity

How much you can borrow can also vary significantly. Someone earning $60,000 per annum may only be able to borrow $263,000 with one lender compared with $356,600 if they approached another lender. Use our how much can I borrow calculator.

Interest rates

The disparity between variable rates is roughly around a quarter of a per cent and for fixed rates it’s roughly half of a per cent, depending on the term.

While this doesn’t sound like much of a gap, if we look at say 7.79 per cent versus 7.59 per cent, for example, and apply that to a $300,000 loan you’re adding up to $600 per year to the cost of servicing that loan.

Over five years, that may add up to $3000. Over an average 30-year loan period, you could be saving approximately $14,850.

Exit fees

Cheaper interest rates can often attract large upfront fees or a large exit fee.

Not shopping around has the potential to cost you dearly, but a ‘home loan health check’ with an experienced mortgage adviser with access to information on loans from multiple lenders can be invaluable.