Commonwealth Bank today launched a new digital-only home loan product, Unloan, with the big bank saying customers can have their home loan applications approved in as little as 10 minutes.
Although not the first lender to offer digital-only home loans in Australia – providers, including Nano and Tic:Toc, already offer digital-only products to borrowers – CommBank says Unloan will be a first of its kind for a digital home loan, due to the gradually increasing loyalty discount offered to customers who stay on the product over time.
What is Unloan?
Unloan is a new digital-only home loan from Commonwealth Bank. Billed as “a new kind of home loan”, Unloan is unique in the way it rewards customers for their loyalty. When announcing the release of the new product, CommBank said Unloan will offer customers a discount that increases every year for up to 30 years.
It is currently available for home loan refinancing, and CommBank plans to make it available to new buyers in the coming months.
What is the interest rate of the Unloan home loan?
Announcing the new home loan product today, CommBank said Unloan is offering homeowners a variable rate, priced at 2.14% per annum (comparator rate of 2.06% per annum), including a loyalty discount that increases by 0.01 percentage point each year, up to 30 years. As a hypothetical example, CommBank’s website for Unloan indicates that if a borrower took out this loan today, the rate would drop to 2.04% (2.06% comparison rate) after 10 years (although this assumes that interest rates remain unchanged throughout this period, which the big bank notes is unlikely).
For investors, Unloan also offers a variable rate of 2.44% per annum (comparison rate of 2.36% per annum) and the same loyalty discount which increases by 0.01 percentage point each year, up to 30 years.
When can you sign up for Unloan?
CommBank said effective today, May 17, 2022, Unloan is accepting refinance applications for home loans up to $3 million, with a loan-to-value ratio (LVR) of up to 80% of value. of the property.
In the coming months, CBA plans to expand Unloan to new home loans and also enable Open Banking-based assessments for an even faster application experience.
The bank promises that Unloan will “remove” many of the complexities seen in more traditional loan options, with a digital customer experience that allows applications to be completed in as little as 10 minutes.
CommBank CEO Matt Comyn said, “Driving digital innovation for our customers, including delivering distinct and differentiated customer experiences, is central to CBA’s ongoing strategy.
“Unloan is a powerful example of what can be achieved by successfully combining the pace and innovation of the startup world with the scale and assets of Australia’s premier bank.”
A new perspective for customers exiting a fixed rate mortgage
Canstar financial expert Effie Zahos said CommBank had picked a good time to bring the product to market, especially given that around $19 billion of its fixed-rate home loans are set to be cut. at a fixed rate in June, and in the face of potential rate hikes.
“For fixed loan customers facing increased repayments, this new digital mortgage loan offering represents a great opportunity for the bank to retain customers within the group,” she said.
“At 2.14%, Unloan isn’t the cheapest on the market, but when you consider that around 73% of homeowner borrowers are in a bank with the Big Four, compared to the cheapest average rate price of the big banks by 2.37 percent, that’s a difference of 0.23 percent.
“It’s a simple proposition,” she continued, “a no-frills home loan with a base rate, no fees, and a loyalty discount. However, with a loyalty discount of just 0.01% per year, Unloan customers would need to stay loyal for a total of 35 years for it to match the current cheapest variable rate in the market for an 80% LVR loan. .
Zahos also cautioned, saying there are some things customers need to know if they’re considering switching to this new digital home loan.
“Unborrow customers [will] must keep track of refunds that are in their withdrawal account, as refunds are processed on a monthly basis, with additional refunds being withdrawn,” she said.
“Given the nature of how this loan works, it is possible to withdraw too much from your withdrawal facility and not leave enough funds in your loan account to meet the next minimum monthly repayment.”
COVID-19 has seen Australians switch to digital banking
Announcing the product last August, Angus Sullivan, CBA’s group director for retail banking, said the bank hoped to deliver the world’s best digital banking experience to Australian customers, especially as we are increasingly more of us are turning to digital and online banking in the wake of the pandemic.
Online banking is not a new phenomenon in Australia, but Mr Sullivan said the CBA wants to “remain a leader in Australia’s digital banking space and continues to aim to be at the global forefront of the digital experience.
“With more than one in four Australian mortgages with [Commonwealth] Bank, this is a natural and appropriate next step in our digital strategy, which continues to put our customers at the forefront of evolving preferences,” he said.
Mr Sullivan said the COVID-19 pandemic had seen a change in the behavior of Australian banking customers, with many turning to digital banking throughout prolonged lockdown periods in many capitals across the country, and the push for the ABC to digital banking platforms recognized this.
More analysis to follow…
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