Online mortgages guide

Recent research by ACNielson has shown there is still an overwhelming desire by customers to apply for home loans face-to-face. The report shows that over one third of all mortgage applicants went into their local financial institution branch, with another third employing the services of mortgage brokers.

Nevertheless, in recent years taking out a home loan online has become increasingly popular, cutting out the middle man and aiming to simplify a sometimes complicated procedure. Online mortgages can seem attractive, often featuring lower interest rates and concessions on other fees, however it is important to consider your options carefully before making a decision.

What is an online mortgage and how does it work?

Firstly, it's important to understand that online mortgages are not for the faint-hearted. When applying for a standard home loan through a bank or other financial institution, you are generally led, step-by-step through the application procedure. All required paperwork is checked meticulously and you are constantly advised about everything that could impact upon your decision - possibly the biggest financial decision of your life.

A good mortgage broker or lender will explain all the relevant products, including fees, charges, terms and conditions, and you will be counselled regarding which loan is right for you.

Online mortgages require you to do all this research yourself, before applying using a web-based application form.

The application procedure

Although a number of the current online mortgage lenders are affiliated with a particular financial institution, it is still a requirement that borrowers satisfy a standard 100-point identity check, regardless of whether they are already customers of the bank.

Next, certain papers must be seen by the lender before the application can proceed. These will include recent payslips, proof of a recent savings history, details of other loans or debts you may have, recent tax assessment notices and other relevant financial information. You may also need a letter from your employer providing your employment history.

Following this, a valuation of the property will be required. Your lender will supply their own valuation, either by using specialised computer software or by employing a valuer to visit the property. Other paperwork pertinent to the property may also be required, such as building reports, certificate to occupy and pest inspection documentation.

The application form itself is a complicated online document which is one reason online mortgages are not recommended for the first time mortgagee. If you make a mistake or do not have the required documentation it can turn out to be a costly exercise, especially if you miss the settlement date on your dream home.

Who are online mortgages for?

As mentioned, online mortgages are not for the novice, or first home buyer. People with previous experience in applying for a home loan, in particular those with a good understanding of the internet, are the most likely to benefit. If in doubt, make sure you can ask questions from an expert. Online mortgage providers do have telephone hotlines so make sure you take advantage of this service before you sign.

Where can I get an online mortgage?

There are currently four main lenders offering online mortgages in Australia. (Note, the following interest rates were correct at the time of publishing. For more up to date rates, use the home loan comparison tool.)

• One Direct (funded by the ANZ bank)

One Direct offers borrowers a low 7.21% standard variable rate. Other fees include a $250 valuation fee and $60 settlement fee. To satisfy the 100-point identity check, certified documents must be mailed to them.

• HomePath (Commonwealth Bank online product)

HomePath's standard variable interest rate is also 7.21% and they give borrowers a concession on their normal fees and charges. HomePath's ID check can be certified at a post office or bank. Independent studies have recently voted HomePath one of the top lenders in Australia.

• Virgin Home Loans (part of Virgin Money)

Virgin allows borrowers the opportunity to get pre-approval before going through the full application procedure. Virgin's standard variable rate is 7.34%. Identification can be verified at a post office.

• Wizard Home Loans

Wizard’s Clear Value loan has a standard variable rate of 7.39% and an application fee of $760. Wizard only offer a partial application process online, preferring to contact the applicant by telephone after the online form is completed.