Non-conforming Lenders
The Age
Wednesday February 19, 2003
If you have ever been turned down for a home loan by your preferred financial institution, you are not alone.
About a quarter of all loan applications made to banks and other traditional lenders
are rejected.
But all is not lost for those turned down by the banks, according to the national corporate affairs manager of Mortgage Choice Warren O'Rourke.
"There are situations where people find their credit history impaired through no fault of their own," he says. "Non-conforming lenders provide the opportunity for applicants who may not get a loan through the traditional channels to be considered for a loan."
Non-conforming lenders appeared in Australia in the late Nineties, but already they manage about 10 per cent of all loans.
For those unable to secure a loan through a traditional financial institution, the advantages of a non-conformist loan are clear:
l Non-conforming lenders cater for those borrowers who are rejected by traditional lenders. They consider each application on an individual basis, although applicants
still need to demonstrate the capacity to meet repayments.
l They may not require borrowers to have mortgage insurance or pay monthly administration fees.
l Interest rates will often reduce to market standard once the borrower has established a good repayment history.
Mr O'Rourke says the willingness of lenders to take on 'high-risk borrowers' comes at a price.
"There's a higher interest rate than the standard loan. It can be 1-2 per cent above the standard. And the upfront fees and exit fees may be higher. If you're paying $600 for the average loan application fee, you might find it could be in the area of $800."
Borrowers should also check carefully that the lender's fees include all legal and valuation costs.
Non-conforming lenders generally monitor the activity of their loans even more closely than traditional lenders.
Regular repayments are often rewarded by a reduction in interest rates, but the penalties imposed for defaults can be severe.
One of the biggest attractions of non-conforming loans is the opportunity for borrowers to re-establish a good credit history.
"If you're able to maintain your payments, then a number of the non-conforming lenders will look at renegotiating your loan after a period of time ... but if they don't, then you'd weigh up whether you'd stay with them and start talking to a traditional lender and seeing whether you could refinance," Mr O'Rourke says.
As non-conforming lenders do not sell directly to customers, consult a
mortgage broker to discuss your eligibility and find out what options are
available.
Top four-year fixed home loans**
Banks
Lender Product True rate Lender
Total Ongoing Exit
name AAPR* rate upfront fees
fees fee
ING Bank 4-year Fixed 6.37% 6.29% Nil
Nil $100
Macquarie Bank First Choice Fxd 4yr 6.38% 6.29% $650
Nil $350
HSBC 4-year Fixed 6.46% 6.39% $605
Nil $150
St George Bank 4-year Fixed 6.47% 6.29% $654
$5/mth $272
HomeSide Lending HOMEPLUS 4-yr Fxd 6.49% 6.60% $600
$10/mth $300
Non-banks
Lender Product True rate Lender
Total Ongoing Exit
name AAPR* rate upfront fees
fees fee
FAI Home Loans 4-year Fixed 6.35% 6.27% $499
Nil Nil
FCCS Credit Union 4-yr Fxd Securitised 6.38% 6.45%
$1105 $5/mth N/A
Pacific Mortgage Corp 4-year Fixed 6.42% 6.49% $300
Nil Nil
Aussie Home Loans 4-year Fixed 6.45% 6.35% $820
Nil Nil
Sth West CU Co-op (Vic) 4-year Fixed 6.51% 6.65% $685
Nil $200
*AAPR is the annualised percentage rate - the rate after extra fees and charges
are taken into account.
**Rates are for loans of $176,000-275,000 in Victoria for owner-occupied homes.
Compiled by www.interestrate.com.au using Cannex data (February 12).
© 2003 The Age