There’s a certain stigma associated with using a non-bank lender to finance a property purchase. Finance companies, especially after the Global Financial Crisis, are often seen as ‘bad lenders’ who are only looking to profit from a borrower’s misfortune.
But that stigma is inaccurate and damaging. While some lenders may still use unethical lending practices, most are simply offering another lending option for advisers and their clients. We can help borrowers by providing a short-term second mortgage, to bridge a financial gap.
Now that the housing market has changed and banks have restrictions on their lending, our services are needed more than ever.
When the bank turns you down
Being turned down by the bank can be pretty demoralising. Borrowers often don’t know where to turn, and feel that they’re out of options – which is particularly tough if they’re looking for a place to live.
Core Finance, and other finance companies, offer an alternative for people who do not meet the bank’s criteria for some reason. Of course, we still have lending criteria, and we won’t lend if we think a borrower can’t keep up with payments, but we have a little more flexibility in certain areas.
Better yet, our lending process is generally quicker and smoother than the banks. We’re easier to deal with, and because we’re not subject to the same restrictions, we’re less rigid about the rules.
Second mortgage solutions
Second mortgages have a stigma of their own. They’re often seen as being a high-risk option for people who have made bad financial decisions. But for people looking to invest in a second property, pay off short-term debts, or finance a business, a second mortgage can be a sensible choice.
By taking a second mortgage but retaining their bank first mortgage it allows the client to maintain their relationship with their bank. Of course, refinancing the whole debt is another option, but often fees and interest rates make this very expensive – a second mortgage is often cheaper overall.
Unlike traditional mortgages, which may have terms of 25-35 years, second mortgages are usually short – 6 months to one year are common terms. This lets borrowers cover their financial shortfall or fund their business launch before longer-term finance comes through, in most cases from their bank. They’re a good option for people who have a long-term plan and know where their finance is coming from, but need to bridge a gap in the timeline.
Like other non-bank lenders, Core Finance is not subject to the RBNZ LVR lending restrictions. We have looser criteria and don’t require permission from the bank before lending. This gives us flexibility, and the ability to help people out if we feel they need it.