What is a digital home loan?

With interest rates on the rise as the RBA looks at further raising the cash rate to tackle inflation, many Australian mortgage holders may be looking at their refinancing options. If the home loans offered by the big banks aren’t as competitive as you’d like, a digital home loan may be an alternative to consider. 

The basics of digital home loans

A digital home loan is a mortgage with an application process that can be handled entirely from a smartphone app. 

Traditionally, applying for a home loan can be a lengthy process, involving filling out multiple application forms, supplying a range of documents, and a lot of back and forth with your lender and/or your mortgage broker. And after completing the process, it may be days before you’ll know if your application was successful.

Digital home loans claim to speed up this process by using technology, such as Open Banking, algorithms and APIs, to handle parts of the approval process. For example, Unloan claims to be able to process a home loan application in as little as 10 minutes, thanks to a process that includes:

• Automated Property Valuation
• Digital Credit Check
• Digital Financial Verification (coming soon)
• Biometric Identity Check
• Digital Signature
• Digital Settlement

Who offers digital home loans?

Digital home loans are often offered by digital lenders, sometimes called neobanks. These specialist financial institutions operate almost entirely online and via smartphone apps, and may only offer a limited number of financial services compared to traditional bank and mortgage lenders. 

By specialising in digital lending, these neobanks don’t have to manage a traditional bank’s overheads (such as the upkeep costs of maintaining traditional bank branches and ATMS), and may be able to pass the savings on to customers as lower interest rates and fees.

Several traditional mortgage lenders are also moving into the digital home loan space, offering online and app-based application processes for their mortgage deals.

What are the pros and cons of digital home loans?

Borrowers who are comfortable managing their personal finances online and using smartphone apps may find value in a digital home loan, as this puts their mortgage at their fingertips. Of course, borrowers who are less comfortable with technology, or who prefer to have the option for face to face customer service available, may prefer a more traditional home loan.   

Australians looking for low-cost home loans could also benefit from digital home loans, which may offer lower interest rates and fees than some more traditional competitors. For example, at the time of writing Unloan offers an owner-occupier loan starting at 2.64 per cent (comparison rate 2.56 per cent) and an investor loan starting at 2.94 per cent (comparison rate 2.86 per cent). Both loans will offer a 0.01 percentage point discount every year for up to 30 years.

However, digital home loans may not always offer as much flexibility or as many options as more traditional mortgages. For example, Unloan describes itself as a simple loan, not for “complex situations”, only offering principal and interest repayments, with no interest-only repayments or honeymoon rates on offer. Additionally, at launch Unloan is only available to refinancers, so first home buyers and other borrowers seeking new loans may need to search elsewhere.

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