They call them ‘shadow banks’ – and that could be because very few know they exist.

But you really ought to.  Because they will save you huge amounts off your mortgage.

In Australia, 80% of our mortgages are with the big four banks. After reading this piece, you’re going to wish those banks would come out of the shadows…

On 12 January 2018, The Australian Financial Review reported that “shadow banks” could cut mortgage repayments on a typical residential loan (principal and interest on $1M, 30 year term, 80% loan) by more than $500 a week.

That’s nearly $180,000 over the life of a loan compared to the “average comparable bank loan”.

How is that even possible?

Most of our best-known banks, building societies and credit unions are ADIs: authorised deposit institutions. That means they’ve been accredited under our Banking Act 1959, and must operate according to regulations set by APRA – the Australian Prudential Regulation Authority.

Then there are non-ADI financial institutions or shadow banks.  They sound a bit dodgy, right.  Well actually, they are not.

They do operate outside the traditional system of regulated depository institutions. But they still have to adhere to responsible lending criteria. They are less strictly regulated, which translates to more competitive rates especially for investment loans.

As the AFR article shows, for an investment loan (principal and interest), you’re looking at saving $578 a month compared to a typical investment loan; and more than $205,000 over the loan term. The savings are higher still for the interest-only loan comparison, with $650 saved monthly for a residential loan, and $692 for an investment loan.

What’s the difference in interest rates?

While borrowers need to consider all the pros and cons of each loan, you can use sites like to get an overall picture of ADI versus non-ADI interest rates. See’s basic variable rate home loans and investment loans pages for lists. Especially with investment loans, there can be quite a sizable gap between the established players and the digital banks, the fintechs and other non ADIs.

You can see that while features do vary on loans offered by non-ADI lenders like State Custodians, Clickloans, Homestar and as examples, they all offer investment products with a comparison rate of around 4.00% at time of writing (or sometimes lower).

Looking at Commbank’s available loans, or Westpac’s, ANZ’s or NAB’s – an investor would be hard-pressed to find a comparison rate in that range.

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