Banks can say “No” to home loan applications for all sorts of reasons. There are many Kiwis with stable employment and good credit history to whom banks have refused a mortgage. Banks must follow strict regulatory guidelines that can result in even the most trustworthy of borrowers occasionally facing unexpected lending roadblocks.
The option open to these borrowers is non-bank or second-tier lenders. And when it comes to second-tier lenders, there are both pros and cons.
Non-bank lenders assess every individual on a case-by-case basis and can be very helpful if you have a weak credit history, are self-employed or a contractor, you’re new to the country, are an older borrower or your personal circumstances have changed, you do not reach the deposit criteria, or you are looking for a second mortgage. While they are generally a lot more flexible and require less personal information, typically non-bank lenders are a little more expensive; you’ll normally pay 1.5 to 2 per cent more with the second-tier lender. Fees will also be higher.
Can you transfer a loan from a private lender to a mainstream bank?
Yes, you can. Switching loa to a bank can save you thousands on interest and mean you finish paying off your home more quickly. But how do you make the move to a mainstream mortgage?
The first thing to do is speak with a mortgage broker so we can present you at your best to the most appropriate lender. Take advantage of our knowledge and connections to find a lender who is most likely to offer you a mortgage.
Putting your best foot forward
Most lenders will let you switch your mortgage over to a traditional lender or structure after a few years or even months, provided you keep up with payments and chip away at the principal and we’ll be able to help you demonstrate that.
An improved borrowing profile increases your chances of being accepted by a mainstream lender. It may be that your personal situation has changed, your credit score has improved, your income has increased, or your debt has reduced. You may no longer be self-employed, or you may wish to use the increased value of your home. For example, if you bought your home with less than a 20% deposit, and your home is now worth more, you may be able to use that equity to negotiate a new mortgage. Again, we’ll be able to put your case forward in the best possible light.
What is mortgage refinancing?
Refinancing is the process of transferring your home loan from one lender to another. It involves ‘paying off’ your existing loan and taking out a new one. It can also provide the opportunity to consolidate and streamline any debts with a high-interest rate, such as car loans, credit card debt, hire purchases, business loans etc., into one lower home loan rate
There are many valid reasons for wanting to refinance, but the question is: should you refinance your mortgage and is there a right time? You need to figure out whether refinancing is a good option for you before signing on any dotted lines and that’s where the help of an experienced expert is so useful.
How does mortgage refinancing actually work?
Your mortgage is a contract between your lender with a fixed term that dictates how long you are guaranteed a specific interest rate, say 5 years at 6.5%. The contract also involves amortisation: how long it will take to pay off your mortgage which is commonly around 20-25 years.
Refinancing can happen either during the term of your mortgage or at the end. If you switch lenders during the term, there’s typically a mortgage penalty.
But there is more to a mortgage than just the interest rate, and there is a lot involved with switching lenders.
If you’re currently with a second-tier lender, the interest rate may well be the number one reason to switch your mortgage, but you also need to consider and compare repayment and mortgage terms and you have to take the time factor into account.
Different repayment and mortgage options will affect how fast you can pay off your mortgage. You may be able to increase the mortgage payments or make lump-sum payments. Some lenders allow you to increase payment each year by as much as 20%. Others are more restrictive. Some lenders let you pay more toward the principal of your mortgage without incurring a mortgage penalty, while others do not. We can help you understand your options.
Next, you need to review the terms. Depending on when you want to switch your mortgage the cost could be quite low. There may also be legal costs and administration fees to complete the paperwork involved in the discharge and transfer of your home loan. In some cases, lenders may even cover some of those costs in form of cash back. We’ll negotiate these for you.
The time factor refers to the cost of interest. With time, you will have paid most of the interest on your mortgage and start to build equity. You need to be careful you don’t revert to paying more interest than principal when refinancing.
Switching mortgages can be advantageous but it depends on understanding the consequences and options available to you, so speak with one of our mortgage brokers. With our extensive network of lenders throughout New Zealand and our up-to-date understanding of the market, we can suggest the best possible lender for your situation.
We’ll guide you through the application process so you can maximise your chances of a loan approval
Your new lender will want to check your credit rating, income, and expenditure as part of the switching process. Each bank’s lending criteria is a little different, so it is vital that you’ve got the paperwork to demonstrate your ability to repay. Our mortgage advisers can make sure you’re not turned down for refinancing solely because you haven’t got the right paperwork in place. We can help you maximise your chance of being accepted for a home loan and we’ll present and argue your case for you.
Watch your credit rating
Another point to remember is that applying too often for a mortgage, or credit in general, can affect your credit rating. Each time a lender runs your credit history, it can negatively affect it. The solution: get us to present your case for you. Because we are constantly in touch with banks directly, we know the lending criteria for every lender in New Zealand and know what you’ll be asked for.
Our loan affordability calculator or LAC uses the same criteria as the major banks. By using our expertise, you won’t waste precious time applying for loans from banks because you simply don’t qualify. In addition, any credit inquiries will be carried out over the same time frame and treated as a single application instead of many, so your credit rating won’t be affected negatively.
Connect with us to review your options
Talk to us and you’ll know what to do and what will work in your best interest. We’ll explain the differences and then negotiate the best rate rates, terms and products to make your money work for you.
Get the right refinancing package
Being with a non-bank lender, you’ll be facing ongoing fees and higher interest rates than those offered by the mainstream banks. Refinancing can reduce your mortgage repayments or the term of the loan, help you to build equity or reduce high-interest debt, but it is not a decision to be made lightly. If you’re looking for expert help to get the right refinancing package, then give the team at Global Finance a call.
**These are general guidelines and are by no means a reflection of bank or lending policies