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Special Types of Home Loan Lending

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Contributor:
Sorted.org.nz
Sorted.org.nz

Alongside
the more popular lending types there are also some special types of
lending for people in different situations and stages of life.

  • 'Low doc' or 'No doc' mortgages
  • Bridging finance and second mortgages
  • Equity release

'Low doc' or 'No doc' mortgages

You may find it difficult to get an ordinary mortgage if you have a
bad credit record, you've just gone into business, or you're
temporarily in trouble after a relationship break-up. In such cases,
you could apply for a 'low doc' or 'no doc' loan, which get their name
because you don't have the documents for a normal mortgage application.

For:

  • You can get a loan even if you don't qualify for a standard mortgage.
  • You can usually shift to a standard type of mortgage after a few years.

Against:

  • 'Low doc' loans often have higher fees and interest rates
    because they have a higher risk for the lender. A $1000 application fee
    isn't unusual. Depending on your background and the property you want
    to buy, interest rates may be close to standard, or up to four
    percentage points higher.

Bridging finance and second mortgages

Bridging finance is a short term, interest-only loan that lets you
buy a new home before you've sold your old one. Some lenders charge
higher rates for bridging finance than ordinary loans, but many lenders
charge the same. A fee of several hundred dollars may also apply.

A second mortgage is just a second loan secured against your house,
usually from another lender. Some lenders charge interest rates one to
three percentage points above first mortgage rates, some charge the
same. Many lenders prefer to take over your whole loan rather than
offer a second mortgage.

For:

  • Bridging finance lets you buy a new place even if you haven't found a buyer for your old home.
  • A second mortgage can provide another source of cash if your first mortgage lender won't allow you to extend your loan.

Against:

  • The costs of bridging finance can be high if you can't sell your old home within a reasonable time.

Equity release

Equity release schemes allow you to stay in your own home while a
lender gives you a lump sum or regular payments secured against it.
Find out more on sorted.org.nz.

For:

  • You can get cash even if you have no income other than NZ Superannuation and no assets other than your home.
  • The money is only repaid when you die or you sell your home.

Against:

  • The debt can grow over time to take a large part of your home's value.

 

Content provided by Sorted.org.nz, Your Independent Money Guide.

 

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