Do You Trust a Homeloan Lender That Isn't an ADI?

EmmaX10 on 18/06/2021 - 07:30

Hi
I want to switch our owner occupier homeloan from NAB (2.66%) to Homestar finance (1.79%). Both are a variable rates due come with a offset.

The problem is my partner does not trust a lender that is not an authorised deposit taking institution and therefore not backed by the government's guarantee.

If you have money sitting in an offset and the lender goes down, you can lose your money. My partner thinks this is a serious risk whereas I think it's a domesday prediction that's losing us a bit of money. Also, I've come to hate banking with NAB due to poor customer service.

So do you trust non ADIs with your money?

Financial

Comments

  • netjock on 18/06/2021 - 07:50
    +11

    Non ADI, borrowing money okay. Leaving money with them no!

    • EmmaX10 on 20/06/2021 - 09:05

      Really brings the point home. Thanks.

  • MrHyde on 18/06/2021 - 08:04

    Also, being non ADI, they cannot offer a true offset account. What you'll be doing is repaying your loan and have the ability to redraw the excess payments anytime.

    So, if they do go bust; your loan amount at the time (inclusive of all payments) would be sold to another provider and you continue repaying to the new provider.

    • spal on 18/06/2021 - 08:43

      True. Because your debt will be secured with a mortgage, the insolvency practitioner would be able to sell the portfolio to interested parties. Having said that if there is a mortgage mayhem going on like in the GFC, and part of the lenders books have large or unknown subprime lending, these would be difficult to sell. However, you can explore refinancing options at that time. Because you have considerable funds in offset, lenders would want to do business with you.
      These are just doomsday thoughts, may not happen. But then again Covid locked us down in the 21st century 🤷‍♂️

    • YRT on 18/06/2021 - 09:03

      ^ this. Echoice was one of those non ADI lender that went bust. I believe non of their customers were affected. Shareholders got a very not nice tax deduction though.

  • Duckie2hh on 18/06/2021 - 08:39
    +3

    Hi OP, just remember that they are the ones lending money to you.

    • mskeggs on 18/06/2021 - 09:43
      +4

      Yes, but if you have a deposit product as well you could potentially lose the deposit, and still owe the debt

  • silenthillrocks on 18/06/2021 - 09:02
    +1

    If you have an offset it makes a difference

  • Yorkshire-Man on 18/06/2021 - 09:28

    For me, the rates are so marginally similar to the major ones why would you need to?

    • EmmaX10 on 18/06/2021 - 10:26

      Well they say every little bit helps when trying to get ahead on your mortgage. However is it worth the risk of the lender going down and taking the money in your offset with it?

  • YRT on 18/06/2021 - 09:46

    As a side note, some lenders are quick to increase interest when feds are up, and refuse to drop when feds are down.

    It's possible you lose out in the long run, especially if you could not refinance in time. DYOR, sign up interest rate is just that.

  • MrHyde on 18/06/2021 - 09:52
    +2

    Redraw and offset with non-banks can be a little different
    How can a non-authorised deposit-taking institution, such as a mortgage lender, provide an offset account with all the transactional facilities like a bank account without being an approved ADI [Authorised Deposit-taking Institution]?

    The answer to this question may be simple but the implication can be great for some borrowers.

    Let me explain: non-ADIs can offer both offset and redraw. Let’s look at redraw first. As long as the overall balance (the difference between the home loan and the offset account) is not in credit then technically there are no savings, so there is no need for them to be an ADI.

    In the unlikely event of the lender going broke, its portfolio of loans would be purchased and managed by another institution. It’s more than likely that the net loan would be taken over, meaning the amount that you owe and the redraw account would be combined, leaving you with equity rather than cash. This wouldn’t be ideal if you were saving this money for a holiday or your kid’s education.

    As for offset accounts, non-banks often work with an approved ADI to offer the offset facility. Money in this offset account would be government guaranteed. If the offset account is not provided by an ADI then chances are it’s essentially a redraw facility labelled as an offset account.

    TIP: As always the devil is in the detail. Be sure to ask your lender about what set up they have. Is it a true offset account and whose name is the money actually held in?

    Source: https://www.canstar.com.au/home-loans/six-things-redraw-offs…

  • EmmaX10 on 18/06/2021 - 10:28

    That's an amazing analysis. Thank you so much. Will definitely look into it.

  • Baysew on 18/06/2021 - 12:39

    My partner thinks this is a serious risk

    Given that interest rates are so low, go for for loan from a lender that is an ADI. It may not be the absolute lowest, but better than suffering a doomsday event. (GFC, Pandemic who knows what is next?) A simple compromise solution.

  • EmmaX10 on 18/06/2021 - 14:35

    Thanks. Yes, I have been looking but the rates from an ADI that isn't one of the big four, is only marginally cheaper than NAB's 2.66%. It makes the cost and hassle of moving across not seem worth the effort.
    It seems as soon as they are an ADI, they offer a more expensive variable rate.

    Thanks for commenting.

  • Ndiddy on 20/06/2021 - 10:16

    Whats the minimum you would need to save to want to move to an ADI that has a lower rate?

    Not sure what your loan amount is but TicToc have 2.04% P&I OO rate with an offset option for $10 per month. ADI through Bendigo Bank so your money is protected

    You could also target banks that are offering cash back deals and get an immediate saving. For example Bak of Melbourne are offering $4K cashback when you get a loan through them.

    By way of comparison the monthly repayments would be $3027 on a 750k loan @ 2.66%. This would reduce to $2788 @ 2.04% which is a saving $239 a month which would take you 16 months to generate a 4k saving.

    • EmmaX10 on 21/06/2021 - 10:04

      Thank you for the recommendations! Yes I have been looking into other homeloan lenders backed by ADIs- it's a bit of a drawn out process. I haven't come across TicToc so thank you for suggesting it.

  • rektrading on 20/06/2021 - 10:37

    It easy to see that the real estate market is in a bubble when we have news like this. Get in while the market is still hot.

    HSBC offers sub-1% mortgage as interest rate war intensifies
    https://www.theguardian.com/money/2021/jun/18/hsbc-mortgage-…

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