Ask a mortgage broker: Should we go with a non-bank lender?
Glen McLeod is director of Edge Mortgages. It will answer readers’ questions about home loans, whether you’re a newbie just entering the market or someone who already has a loan and is wondering how best to handle it. If you have a question, email [email protected]
We were refused a mortgage with our bank. Should we try a non-bank lender? Is there anything we should know about this?
Non-bank lenders are an important part of the New Zealand financial landscape. They provide a pathway to your first home.
If you have ever had financial problems, a non-bank lender may be the way to get a loan, but at a potentially higher interest rate.
Applying for a loan through a non-bank lender is the same as applying through a bank. A complete application, including a statement of premises and income and expenses, is required. Proof of income, bank statements and ID will all be required. In some cases, income verification can be done through bank statements and GST returns.
A registered appraisal on the property you plan to provide as collateral will also be required. This may not be the case with traditional banking. It is also likely that you will be charged an application fee in advance.
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Interest rates are generally higher than what you would pay at a traditional bank, even for prime loans, and may increase depending on your financial history and how you prove your income.
Non-bank lenders follow the rules of the Credit Agreement and Consumer Credit Act to ensure loans are responsible. They may or may not offer fixed rate loans.
If you end up with a lender that only offers variable rates, you may find that even after you borrow, your interest rates will go up in line with the market.
There are currently a number of non-bank lenders in New Zealand giving you a variety of choices. They all have their own nuances regarding what they consider acceptable property and location. For example, you may not be able to drive through some postcodes due to location and lack of proximity to people.
For many years my clients have asked me whether or not it is safe to go with a non-bank lender. I think it’s a generalized fear of going outside of the major banks.
With everything, you need to understand what you’re getting into from the start. So doing your homework and speaking with your qualified mortgage advisor is an important part of your decision. They will be able to detail the differences in the policy and the interest rates and fees.
Sometimes people choose to do business with a non-bank lender for a while and then refinance with a traditional bank.