Special Types of Lending
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.
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.
