The Commonwealth Bank is increasing its one-third stake in Aussie Home Loans to 80 per cent ownership.
The bank also has the option to increase that stake further to 100 per cent ownership.
CBA says Aussie will continue to operate independently of the bank, and its founder John Symond will remain as executive chairman.
"For Aussie, it will be business as usual as it continues to provide a full range of services to brokers and lenders in the way it always has," said Rob Jesudason, CBA's group executive group strategic development, in a statement.
Mr Jesudason says the Commonwealth Bank's stake in Aussie had been very successful for it so far.
"We recognise the strength and reputation of the Aussie brand and name in the Australian mortgage market and also the importance of broker distribution of home loans and other financial products," he added.
The bank says the acquisition depends on it gaining informal clearance from the Australian Competition and Consumer Commission.
Aussie's founder and executive chairman John Symond says the deal will not lessen competition in the mortgage market, and the company will continue to offer mortgages with other lenders.
"It's got to increase competition because, as part of the transaction, Commonwealth Bank has agreed for the integrity of the Aussie business model to remain," he told ABC News.
"We have 18 different funders on our broker panel, Aussie can continue to establish new relationships with different banks, we can source different products and services from other banks and financial institutions." Morningstar's head of Australian banking research, David Ellis, agrees the deal will not necessarily lessen competition.
"It's a deal that will further strengthen Commonwealth's Bank number one market share in mortgages in Australia," he said.
"I expect that Commonwealth Bank will move to 100 per cent ownership, and it just strengthens their distribution and reach into the Australian mortgage market - so it's a positive deal, albeit a deal that's not necessarily a major deal for the Commonwealth Bank." However, the head of campaigns at consumer group Choice, Matt Levey, is not so sure about the deal's benefits for home loan customers.
He says Australia's mortgage market is already too concentrated in the hands of the four major lenders.
"At face value this is not necessarily a good thing for Australian consumers," Mr Levey said.
"We've got four very large banks in Australia, four very profitable banks, who we often say don't put consumers' interests first in their pricing decisions, so any time we see those banks get bigger, consolidate, become more profitable, we don't necessarily think that's a good thing for competition in Australia at all." Mr Symond and CBA say the terms of the deal are confidential, but the transaction will not be material to the bank's financial performance.
Mr Symond told the ABC he will remain executive chairman of Aussie for at least the next four years.