MyRate Education Centre

Funding

When considering a mortgage and finding a home loan, you may look at the current market climate and be concerned as to where your funds are coming from. For more information see our education video on home loan funding.

Banks have two main sources that they get their funds from:

Deposits – This is the money banks get from people depositing money into their savings accounts and term deposits.
Investors – Funds sourced from organisations representing investors such as credit unions, superannuation funds and councils.

Once lenders have obtained these funds they are the able to lend them out to different categories of borrowers such as the following:

Prime – These are the people that have a stable income and good credit history (no defaults). Because there is less risk involved in lending to them, the funds can be obtained (and past on to borrowers) at a lower interest rate.
Sub prime – Increased risk customers. These are customers that have credit problems and unstable work/income. The costs to lend to these borrowers is higher, therefore the interest rates on their loans are generally higher.
Non conforming – Are the clients that do not fit into either of the above two categories, and are generally considered higher risk.

MyRate only operates in the Prime market and is funded by ING. ING obtains their funds from both deposits and investors. This, along with our direct lending business model, means we are able to consistently keep our rates low.

Tips:

Make sure your funding is secure.

Where is the money coming from? – Make sure to ask where the lender derives their funds from. You can then determine what would happen if the environment was to change. e.g. Is the funding spread out enough that the institution can absorb market changes? Or will they be forced to pass on the change to the borrower.

The bigger banks have the deepest pockets and are able to reduce the risk of passing on increases to the customer – MyRate is funded by ING which is bigger than Australia’s four biggest banks combined!

Check the institutions credibility – are they licensed? Do they hold a banking license?