As the name suggests, an online home loan or digital home loan is a type of financial loan that is offered completely online by banks and lenders. From the application process right through to loan funding, all aspects are completed digitally with no requirement for physical documents or the need to visit a banking branch. If you are considering an online home loan to make your new home dreams a reality, it’s important to first understand how these loans work before signing away on the dotted line.

How does an online home loan work?

Online home loans offered by banks and lenders are backed by digital systems and processes, with technology allowing loan decisions to be made faster than traditional banks. Given online home loans cut out the face-to-face contact associated with brick-and-mortar bank branches, these home loans will typically come with interest rate discounts, yet tend to possess stricter lending criteria.

Banks and lenders offering online home loans in Australia must adhere to rules and regulations designed to safeguard borrowers. If an online lender is a Authorised Deposit-taking Institution (ADI), meaning they provide savings accounts and term deposits in addition to mortgages, they are required to comply with Australian Prudential Regulation Authority (APRA) guidelines. Even if an online lender only offers mortgages, they are still obligated to follow the regulations outlined by the Australian Securities and Investments Commission (ASIC).

If you are unsure about the safety of online home loans, banks and lenders offering these products must provide access to their Australian Credit License (ACL) for piece of mind. If you encounter any issues with a lender, you can contact the Australian Financial Complaints Authority (AFCA).

Applying for an online home loan

Much like a traditional home loan, the process of applying for an online home loan is identical - requiring borrowers to prove identity, income, assets, liabilities and meet debt-to-income ratio requirements. Where differences lie is in filling out paperwork and tracking the loan application process, which can be completed on a website or even in a mobile application, depending on the bank or lender.

Online home loan applications are relatively straightforward, however to make the application process seamless it is important to have scanned copies of documents on standby including personal information (driver’s license, birth certificate, Medicare card), pay slips, bank and credit card statements, tax returns and information surrounding any outstanding debts. The type and the number of documents required will vary depending on the bank or lender offering the online home loan.

Pros and cons of an online home loan

Pros

  • Convenience: Online home loans offer convenience by taking the hassle out of physical paperwork and scheduling visits to brick-and-mortar bank branches. Online home loans also offer the ability to manage your home loan through an online portal or mobile app, with the ability to chat to a customer service representative either online or over the phone should difficulties arise.

  • Lower rates and fees: Online home loans have lower overheads, meaning banks and lenders can offer more competitive interest rates to bring customers onboard. Paying less interest and fees has the potential to save you thousands over the life of your home loan.

  • Fast: Pending all documents are in order and no difficulties in the application process take place, online home loan applications can be completed by some lenders from as little as 30 seconds.

  • Secure: Online home loans are backed by digital systems and processes containing tailored encryption to ensure your details remain secure. Online home loans are backed by laws and regulations.

Cons

  • Strict lending criteria: Banks and lenders will generally have stricter lending criteria for online home loans, meaning they are less likely to approve loans with greater perceived risk. This will typically include online home loan applicants with a loan-to-value ratio of greater than 80%, low credit score, a number of current debts or those looking to purchase in a regional location.

  • Limited face-to-face contact: Online home loans offered by banks and lenders are generally without brick-and-mortar branches, meaning they offer an absence of human interaction for those who may not be tech-savvy.

  • Limited features and products: Banks and lenders offering online home loans will generally only operate online, meaning they may not have other features and products available, including deposits, personal loans and credit cards. This is generally the case if the lender offering the online home loan is not an ADI.

Savings.com.au’s two cents

For convenience, flexibility and speed in approving your home loan application, online home loans are fast becoming the go-to for Australians looking to take out a new home loan or refinance. Traditional brick-and-mortar banks are taking notice, pivoting resources to cater for this demand with the likes of CommBank launching Unloan, ANZ launching ANZ Plus and NAB taking the reigns of ubank.

Online home loans require all the same documents and application requirements as a brick-and-mortar home loan and can provide customers with potential interest rate discounts. As with any financial decision, it’s important to account for your own financial position, interest rate, fees and associated features that come with an online home loan before signing on the dotted line to secure a mortgage.

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