Moving Your Mortgage From a Non-Bank Lender to a Bank

Why people start with a non-bank lender

Usually for one of a handful of reasons: a short self-employment history, credit problems, an unusual income, a small deposit, or a deadline no bank could meet. Non-bank lenders are more flexible on policy and charge a higher rate for it. Good advice at the start includes a plan for leaving. If nobody gave you one, this is it.

What a bank wants to see

Banks ask a simple question: has the original problem gone away?

• Short trading history: two full years of accounts now exist, with stable or rising income.
• Credit problems: defaults are paid, and there's been a clean run since, generally 12 to 24 months.
• The loan itself: every repayment made on time. Your non-bank loan statements are the single most persuasive document you have.
• Equity: enough to meet the bank's limits, helped by repayments made and any rise in value.
• Everyday accounts: three to six months of statements without dishonours or unarranged overdrafts.

The same-size advantage

If you move the existing balance without borrowing more, the Reserve Bank's loan-to-value restrictions don't apply to the refinance, and some banks take a more flexible view of applications with a strong repayment record. That's a dollar-for-dollar refinance, and it's the most common way out of non-bank lending.

Check your exit costs

Read your current loan agreement for early repayment charges. Some non-bank lenders charge a fee if you repay within the first year or two, and fixed-rate loans can carry break costs. If a fee applies for another four months, waiting four months may be the cheapest move available.

If the bank still says no

It isn't all or nothing. A lender in the middle, such as a smaller bank, building society or credit union, may take you at a rate between the two. Or your current lender may reduce your rate once your position has improved, if you ask. Either can cut costs while you finish rebuilding.

This article explains how New Zealand lenders generally assess these situations. It is general information, not personalised financial advice, and lender policy changes often — check your own position with a registered adviser. Official sources: Reserve Bank of New Zealand for lending policy and the OCR, and Sorted.org.nz for independent government-backed money guidance.