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Banks let borrowers set their own mortgage rates

Two Australian banks and one credit union are working with an Australian fintech company that allows borrowers to set their own home loan rates.

Dfinanz today announced that it has entered into agreements with three Australian lenders and seen the first engagements between borrowers and lenders on the platform. Dfinanz is focused on mortgage refinancing.

The system allows borrowers to set their desired interest rates – their ‘fair rates’ – to refinance mortgages in an online marketplace. Lenders can ‘hit’ these rates with offers for loans based on these rates.

Founder Peter Coco said the firm was well positioned to give consumers more power without requiring banks to change their existing lending infrastructure.

“Dfinanz was conceived around the idea that home buyers should be able to help set the interest rate they will pay on their loans,” Mr Coco said.

“Comparing rates is really difficult and time consuming and even then the advertised rates won’t be the same as what you end up paying.

“With dfinanz, the borrower tells the banks what rate they want to pay, and the banks come to them. It’s turning the traditional model on its head but the beauty is that is doesn’t fundamentally change the way the banks do this business from an operational perspective. That’s why we think it will work – and is already working,” he said.

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The new platform comes at a time when the Australian mortgage market is becoming increasingly complex as lenders respond to regulatory curbs in investor and interest-only home loans.

Meanwhile, the spread between the highest and lowest standard variable rates is at an 18-month high, according to Canstar. The current standard variable rates available on the market differ by more than two per cent.

The average Australian mortgage is now $444,000, Mr Coco noted. Saving 50 basis points on a loan like this could save the average homeowner more than $22,000, but the ‘stickiness’ of mortgages has meant most people miss out on getting the best deals, he said.

“Switching loans has always been a daunting process – most people know it could be a good idea but the difficulties involved put people off,” Mr Coco said.

“Now, a would-be borrower can set up a Dfinanz account in about five minutes, then sit back and wait for the bank to come to them.”

Mr Coco said the low-cost Dfinanz model offers productivity gains to lenders.

“It works well both in a centralised model – where lenders dedicate resources to reviewing and accepting rates – and decentralised models where they allow front-line staff to use Dfinanz to find sales opportunities,” he said.

“Lenders don’t have to pay big commissions to us in the way they do under existing frameworks, resulting in savings that can be passed on to customers. We are talking to a range of participants in the home loan market, from retail banking executives to mobile bankers and mortgage brokers.”

The interest rates being set by borrowers on Dfinanz are good reflections of reasonable rates within the current economic environment, Mr Coco said.

“What we’re seeing is people setting rates around 50 basis points lower than the rates they’re currently paying, but still well within the boundaries of what’s reasonable for a bank,” he said.

“The average rate on the platform this week is 4.09 per cent – people aren’t looking for silly discounting. They just want to pay what’s fair.”

The firm is currently in its Series A fund raising process.

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