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Online vs brick and mortar home loan lenders

There’s a lot to consider when buying a home, but your home loan will be one of the most important factors. You want to choose a home loan that suits your current situation and it is equally important that your chosen lender aligns with your vision and preferences for your home ownership journey.

One thing to remember is that you aren’t tied to one lender for the rest of your loan repayment term. In fact, it’s a good idea to consider refinancing roughly every 2 years. So, if you end up being unhappy with the lender you choose, you can switch in the future.

An online lender is one that operates exclusively online and does not have branch access. On the other hand, a brick and mortar lender typically works like a traditional bank with physical branches and everyday banking services, but also offers loans (e.g. NAB, Commonwealth Bank, ANZ or Westpac).

In this article we’ll explain some more of the differences you are likely to experience between an online lender and a brick and mortar lender.

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1. Rates, loan features and offers

Online lender: Cheaper mortgages and lower interest rates

Online lenders typically have fewer overhead costs meaning they can pass these savings onto you as a borrower. Owning or renting out a physical space is very expensive; you have to factor in other costs such as cleaning, maintenance, staffing, security and more. An online lender can have just one office and call centre to service the entire country.

So, it’s common for them to offer zero fee home loans and not charge application and closing costs. Additionally, you can expect slightly lower interest rates. However, you always want to consider the whole home loan product, and not just the interest rate and fees. You may regret going with a less suitable home loan just because it has a lower interest rate!

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Brick and mortar: Sort out your all finances in one place

Most brick and mortar lenders usually offer everyday banking services, in addition to providing loans and credit cards. In contrast, many online lenders just specialise in home loans and other credit products.

If you choose a brick and mortar lender that offers everyday banking services, you might be able to streamline your finances so that everything is ‘under one roof’. This isn’t necessary, but it may help with managing your budget if all your accounts and financial obligations are in one place.

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2. Customer service

Brick and mortar: Face to face interactions and physical branches

Brick and mortar banks, lenders and credit unions are known for their physical branch locations. Often, if a customer wants service, they will be better off visiting a branch than trying to conduct business online or over the phone.

This means that you can carry out the mortgage application process in person. Generally, you will have to have physical copies of the necessary documents and may have to wait a while for service since they offer other services than just lending.

Some brick and mortar lenders will allow you to at least begin the home loan application process online, but there will usually be an in-person component required.

For some borrowers, nothing will beat the experience of face to face customer service. This is often preferred by borrowers who are less technologically savvy, as they feel they can explain their concerns or questions more appropriately in person.

With an online lender, you won’t be able to sit down with a loan officer to discuss your borrowing needs. The sense of personal connection can be seen as a great advantage for many borrowers, especially if you end up forging a good relationship with the branch’s employees. It's important to remember that forging a strong relationship will not necessarily mean better access to discounted rates or fees.

Online lender: Better websites, apps and repayment systems

Since their domain is online, online lenders will usually dedicate more funds and time to improving the efficiency. Their websites and dedicated apps tend to be cleaner, easier to navigate and make repayments through.

Many online lenders will also have sophisticated technology systems to help simplify and fastrack the mortgage application and settlement process. For example, the ability to upload loan supporting documentation through their online portal or the capacity to verify your identity digitally.

3. Application process

A major pro to using an online lender is convenience and the potential for faster processing. Since all your dealings with the lender will occur online, you can manage your home loan from wherever you are (so long as you have an internet connection or phone signal). This can help you avoid having to take an afternoon off work to go down to the bank. Plus, if you live in a remote location, you don’t have to worry about travelling to a physical bank branch to get customer service.

Several online lenders are known for processing loan applications faster than traditional banks, however this will not be the case for all. They may have smaller teams processing applications, so it isn’t guaranteed.

You won’t be able to control how quickly your home loan application is processed and approved or declined. But if speed is a priority, our Home Loan Specialists may be able to suggest certain lenders to apply with.

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4. Trust & reliability

Many of the brick and mortar lenders have easily recognisable names. Because of this, borrowers may have had experience with these banks before and may feel a greater sense of trust. People often don’t want to put their money with a random bank, so they go with something familiar.

This is understandable but probably shouldn’t be your deciding factor. Despite many online lenders receiving backing from the larger, more traditional ones, some borrowers may still deem them as less trustworthy. However, this perception of unreliability is largely unfounded. In fact, over the past year, Lendi has seen an increasing number of borrowers embracing the online home loan process.

Take the time to research the lenders you are interested in and remember you can refinance if you end up unsatisfied with your home loan or lender.

Should I choose an online or brick and mortar lender?

What you choose is completely up to your needs and preferences. See our summary table for a brief comparison of online vs brick and mortar lenders:

Online lenderBrick and mortar lender
All communication is online or via telephoneAccess to physical branches
Application happens onlineIn-person communication
Typically online lenders are newer and less establishedMore personal customer service experience
May offer reduced interest rates and low fee home loansIf applying directly to the bank, application will usually be at least partially in person
Processing times may be fasterTraditional, recognisable banks
Often offer specialty home loans (e.g. bad credit loans)Usually offer everyday banking services and various loan types
Usually have good websites and online servicesLess likely to consider lending to borrowers who only have foreign incomes

If you use Lendi’s online platform, you can compare and apply for home loans exclusively online. We work with over 35 Aussie lenders, including traditional brick and mortar banks, as well as some emerging online lenders.

Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: interest rate, home loan, refinance, lender, first home, first home buyer, new purchase, big 4 banks

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Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 35% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. Lendi's board is majority independent and non-executive.
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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