Non-Conforming Home Loans for Refinancing

October 20, 2017


Even if you don’t have perfect credit, or don’t fit into the ideal borrower mould that traditional banks prefer, this doesn’t mean you can’t refinance your mortgage. You can apply for a non-conforming home loan and still achieve the financial goals you are after through refinancing, whether you need to reduce your repayments, want to consolidate debt or to save money on a lower interest rate.

What Is a Non-Conforming Home Loan?

Loan products are broken into two primary categories. They can be prime or non-conforming. A prime home loan refers to a mortgage product that adheres to the lending criteria used by the major banks. If you can qualify for a prime home loan, you don’t need to look for a non-conforming loan. Prime loans will usually have better rates and you’ll be able to find the features you want.

Non-conforming loans are also known as specialist loan products. They are generally offered by non-bank lenders who have more flexible lending criteria. While this type of loan may be easier to qualify for, you’ll also find less competitive rates and higher fees as your lender may have to assume more risk when working with you.

Who Qualifies for a Specialist Loan?

Are you a good candidate for a non-conforming home loan? If you want to refinance but don’t have excellent credit, or if you’ll have trouble demonstrating a stable income, perhaps because you just started a new business, a new job or simply work in a volatile industry, specialist lenders may be the way to go. You may also need to use a non-conforming loan if you are an older borrower and are closer to retirement. A lot of banks won’t let you refinance once you reach a certain age.

When Is Refinancing with a Non-Conforming Loan a Good Idea?

If you don’t qualify for a prime loan, you may not want to refinance right now. The cost of switching loans may not be worth it if you aren’t able to get a cheaper loan. However, there are plenty of smart reasons to refinance that may make specialist lenders a wise option.

  • If you would save by refinancing to a debt consolidation loan, but have bad credit due to the debt you are trying to manage.
  • When you need to refinance to a lower repayment amount because you’re struggling to pay back your mortgage on time

Just keep in mind, the goal is to use a refinance to your advantage. If you refinance only to get further into debt because you are trying to unlock equity or if you won’t be able to resist the redraw facility on your new loan, you’re not helping yourself pay down your mortgage by refinancing.

On the other hand, if you work out the numbers, talk to a mortgage specialist and still determine you stand to gain from a non-conforming loan, know that there are plenty of options out there. Shop around, compare rates and fees and work towards using your new specialised loan to reduce your debt and improve your credit. In the future, you may be able to refinance to a prime home loan once you have become less ‘untraditional’ in the eyes of the major mortgage lenders.

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