Why smaller banks could save you more

Why smaller banks could save you more

New data from the Australian Finance Group (AFG) shows more borrowers in Australia are refinancing their mortgage through small and mid-size lenders.

This shift indicates people are more inclined to step away from major lenders, including the big 4 banks, preferring more niche lending institutions.

Here’s why this matters to you.

More competitive loans and refinancing options

According to the Sydney Morning Herald, this spike in interest towards small lenders is largely due to more people relying on mortgage brokers to source a home loan, or refinance their existing loan.

A mortgage broker compares many different loan products (sometimes hundreds) from competing lending institutions. Their client is the borrower, so it is in their best interest to find you the most competitive loan possible, so you use their services again.

A broker has no allegiance with any particular lender. Rather, they have a variety of different lenders on their books, which means they have access to a greater pool of competing loan products.

Why are the big banks less popular?

In the past, it was normal for people to build a relationship with their bank manager, or even a particular branch, and then source a home loan from them when it was needed.

The downside to this approach is that a bank employee doesn’t work for you; they work for the bank. Plus, a bank only has access to a limited number of home loan products, so you have fewer options, and therefore, are less likely to secure a highly competitive home loan.

In short, the bank wants you to choose it’s own products, and it will do it’s best to ‘sell’ them to you. On the flipside, a broker has the ability to compare home loan products from a whole range of lending institutions, and then recommend one or a few that are best suited to you.

Why smaller lenders are often better

Small to mid-size lending institutions are often able to provide more niche terms, and in many cases, cheaper rates than major lenders.

We find many of our clients come to us, having been knocked back by their usual bank, only to find that a smaller lender is able to provide them with the funds they need.

Case study 1 - Sole trader

Dan* came to us after being refused finance from his local bank. As a sole trader with only one tax return, he did not fit within the bank’s lending criteria. We reviewed

Dan’s financial information and found that he did have the capacity to pay off a home loan; he just needed a lender with a criteria that suited his circumstances.

One of our brokers pinpointed a lender that met Dan’s criteria, and his loan was approved.

Case study 2 - Only 2 pay cheques

Genevieve* had been working full time for many years in an advertising firm when she quit and took time out to travel. When she arrived back home, she took on a new job, and applied for a loan with only a couple of paychecks to back her.

The bank rejected the application on this basis, but we were able to source a home loan from a competitive lender who accepted two pay cheques as proof of income.

Of course, there were many other factors involved with both of these case studies. But ultimately, these people had the capacity to pay off a home loan, but were rejected by major lenders due to the fact they did not fit within the ‘typical’ big bank mould.

If they hadn’t approached a broker, they may still be struggling to secure a competitive loan.

Let us do the legwork for you

We compare hundreds of different loan products from trusted lenders, then recommend options that save you more, and match your finance goals.

We can come to your home, or your office, for an initial discussion. This home loan service is free of charge, as the lender you end up choosing pays us a commission when the loan is settled.

If you’re looking to save on your existing home loan now is an excellent time to consider refinancing. There has been a marked increase in the number of people securing new home loans to pay off an existing mortgage debt at a cheaper rate.

Head here for more on this refinancing trend. Click here to get started.


* Names have been changed for privacy reasons.

Financial Advice Disclaimer: This information is general in nature. Mortgage brokers do not provide financial advice. Clients seeking financial advice will be referred to a qualified financial planner.