Sunday, May 29, 2011

Why I would choose Ubank Variable Loan 6.59%

There is nothing like watching a new competitor come into a market and challenge the status quo and taking a chunk of the market with them. The National Australia Bank internet subsidiary Ubank has thrown down a lofty challenge to the incumbents by dropping their variable home loans to 6.59%.

To take advantage of this, you must have an existing home loan of which more than 20% of the value of the house has already been paid off. They are not offering this product to new home loans, just those with existing home loans looking to refinance.

I didn't realise how much a difference this was going to make until I tried comparing someone who is on a $300,000 loan paying say an existing 7.30% variable interest rate over 30 years, with Ubnk's 6.59%. The calculator showed that the person would save $134,035 and pay off their loan 5.5 years earlier! Even though this is a rough calculation, that figure is staggering and worthy of closer inspection.

So some of the questions I had in mind were -

No Offset account?
Some don't like the idea of not having an offset account but from what I could tell (and do correct me if I am wrong), Ubank allows you to redraw any amount over $1,000 that is over the minimum repayment schedule from your home loan account at any time without any fees.

No branch access?
WHen i thought about it, I hardly trust anyone nowadays and do my own research so how much do I lose not having a bank rep to talk to? How complicated can home loans be? So I decided this was not such a problem, you can always call them up anyway.

Variable means it can go up any time right?
That was also another concern I had but even assuming you can't trust anyone, your alternatives are other banks and home loan institutions and so at the end of the day, maybe you should just look at the rate if you don't trust anyone anyway? I was also thinking, the people attracted to Ubank are probably the same people who would be the first to bail on Ubank if they suddenly decided to rip people off. The typical user is net savvy and in one combined social media orchestrated jump, could leave Ubank and NAB licking their wounds so I found comfort in that.

What other issues can you see people may want to consider? But in the end it looks like Ubank is worth a shot and since there are no exit fees, just keep your finger on the trigger at the first sign of Ubank going 'traditional bank'.

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