Are you among the many Kiwis who have faced a disappointing “No” from banks when applying for a home loan? It’s frustrating, especially when you have stable employment and a good credit history. Banks, however, must adhere to strict regulatory guidelines, sometimes resulting in unexpected lending roadblocks for even the most trustworthy of borrowers.
Can you switch off your loan?
When a bank says no, many borrowers turn to non-bank or second-tier lenders for help. If you’re a homeowner with a mortgage from a private lender in New Zealand, you may be wondering if you can transfer your mortgage to a mainstream bank.
The answer is a resounding yes! Making this move can be hugely beneficial and it could also save you thousands of dollars in interest over time.
Why borrow from the big, mainstream lenders?
Banks generally offer lower interest rates than non-bank lenders, and they have a wider range of mortgage products to choose from. Mainstream lenders also offer better terms and conditions, including longer loan terms and the ability to make extra repayments without penalty.
Another advantage of moving to a mainstream bank is the ability to refinance your mortgage. This can be a smart move if you want to reduce your monthly repayments, shorten your loan term, or access equity in your home.
When can I switch to a mainstream mortgage?
Banks say no for various reasons. Non-bank lenders are more flexible than banks and assess every individual on a case-by-case basis. They can lend if you have a weak credit history, are self-employed a contractor, are new to the country, your home deposit was not large enough, or if you are an older borrower.
But maybe your personal circumstances have changed, and you now have an improved borrowing profile. So, while getting approved for a mortgage from a bank can be challenging, it’s worth considering if you want to access better interest rates, terms, and conditions.
But how exactly do you navigate the transition to a mainstream mortgage?
If you’re interested in switching from a private lender to a mainstream bank, the first step is to speak with a mortgage broker.
Most traditional lenders will let you switch your mortgage over to them after a few years, provided you meet certain criteria. Maybe 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.
A mortgage broker can effectively present these positive changes to mainstream lenders, maximising your chances of a securing a new mortgage with them.
How do the banks know if you’re a good bet?
The new lender will want to assess your ability to repay a mortgage. They’ll look at your credit rating, income, and expenditure. Each bank has its own lending criteria, so you need to have the paperwork relevant to that particular lender.
And, as Aseem Agarwal, Head of Mortgages at Global Finance Services reminded us, “Banks have lending criteria that change day to day, making it almost impossible for you to know which to approach. However, a mortgage broker does.
“Mortgage advisors know which banks or lenders would work best for your circumstances and the requirements you’ll need to meet,” he adds. “We can help you navigate the process and present your case in the best possible light to the most appropriate lender.”
Mortgage advisers can ensure that you have the right documentation in place, minimising the risk of being turned down due to paperwork issues. They also advocate for you, increasing your chances of loan approval and a successful transition between lenders.
Watch your credit rating
Aseem warned against multiple credit applications as they can negatively impact your credit rating. Each time a lender runs a credit check, he explained, it leaves a mark on your credit history. Lenders can interpret these multiple inquiries as credit refusals and therefore regard you as a poor candidate for one of their mortgages.
To avoid this, Aseem’s advice is to let Global Finance apply on your behalf. “As we maintain direct communication with banks and possess in-depth knowledge of each lender’s criteria, we’ll suggest you apply only to those institutions where you meet the requirements”. That way there will be no adverse effects on your credit rating as any credit inquiries made within a specific time frame will be treated as a single application.
There’s more to a switch than just the interest
While the interest rate and high fees are often the primary reasons for switching mortgage providers, it’s essential to consider other factors as well.
Refinancing with a mainstream can also lead to lower mortgage repayments. Switching lenders can mean tailoring your loan to suit. You might choose different repayment frequencies (weekly, fortnightly, or monthly) or adjust the loan term to spread the repayments over a longer period.
Conversely, you may opt for a shorter loan term. Banks often offer shorter loan terms than private lenders, allowing you to accelerate your path to full homeownership. By going for a shorter term, you build equity in your property more quickly and save on interest payments in the long run.
Some mainstream banks even offer cashback incentives when you switch your home loan to them. Upon finalising your mortgage, they may give you a cash pay-out that could be used for things such as paying down debt or home improvements.
Switching lenders requires a comprehensive understanding of available options
However good these benefits appear, it’s crucial to approach refinancing fully informed so you choose the right refinancing package. Repayment terms, mortgage terms, and the overall time frame of your mortgage should be carefully compared and evaluated.
“That’s where our mortgage brokers are so valuable. We have an up-to-date understanding of the market and the lenders throughout New Zealand. We will provide a detailed explanation of the differences between lenders and help negotiate the most favourable interest rates, terms, and products.”
Ready to switch mortgage lenders?
Talk to the team at Global Finance on 09 255 55 00 and get the answers and support you need to switch off your old mortgage.
The information and articles published are true and accurate to the best of the Global Finance Services Ltd knowledge. The information given in this article should not be substituted for personalised financial advice. Financial advice should always be sought independently which is personalised depending upon your needs , goals, and circumstances. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or its employees liable.