Have a credit problem and can’t get a bank to accept your home loan application?
A bad credit home loan is a short term solution offered by specialist or non-conforming lenders.
When you’re eligible to refinance your loan, you can switch back to a major lender and get a cheaper interest rate.
Am I eligible to refinance back to a bank?
You are eligible to refinance out of a non-conforming loan once you meet standard bank criteria. This generally means that:
- You owe 80% or less of your property’s value (up to 90% can possibly be considered).
- All of your defaults are paid and are no longer showing on your credit file.
- You have full income evidence (low doc loans may be available in some cases).
- You have made all of your repayments on time in the last 6 months.
Please call us on 1300 889 743 or enquire online to speak to one of our specialist mortgage brokers who can help you to work out which lenders will accept your loan.
What if I am ineligible?
Not everybody is eligible to refinance straight to a bank loan, in these situations we usually refinance to a cheaper specialist loan before refinancing to a major lender.
We use this option if you have serious problems with your credit file, such as paid defaults, that are going to remain in place for many years.
We will calculate if it is worthwhile for you to refinance or if it is better for you to wait for your credit history to be completely clear before refinancing to a prime lender.
Why should I refinance?
Non conforming loans, bad credit home loans, and in particular private loans, have much higher interest rates than normal bank loans.
By refinancing you can either reduce your repayments or you can continue to make the higher repayments and save even more off your mortgage, for example:
- If you have a loan of $500,000 at a rate of 8% then you are paying $3,689 per month whereas on a rate of 6% you would pay only $2,998 per month!
- Over 30 years the difference between the two loans is a whopping $248,785 in interest!
This is why specialist lenders are designed to be a short term solution, the cost of the loan over thirty years is much higher than that of a bank loan.
If you only keep the loan for a year or two then the loan usually makes sense, so your goal is to refinance as soon as you can. You can view our lender’s best interest rates to get an idea of how much you could save.
What are the costs?
The new loan will just have the normal set up costs which are usually from $0 to $800 depending on the lender. If you borrow over 80% of the property value then you may be charged Lenders Mortgage Insurance.
You may have to pay early exit fees on your existing loan such as a Deferred Establishment Fee (DEF), Discharge Fee, Early Termination Fee or Break Cost (fixed rate loans only). These exit fees usually only apply for the first few years that the loan is open. Please refer to your lender for the exact exit fees.
You will not pay any exit fee if your loan was advanced after the 1st of July 2011 as the Australian government banned early repayment fees for mortgages.
There are some cases where exit fees may apply even if your loan was advanced after the 1st of July 2011. For example if your loan is NCCP unregulated or if you have a fixed rate loan you may be charged break fees.
Will lenders know about my past?
Did you know that even if you pay a default that it will remain on your credit file for five years? Bankruptcy and part 9 agreements can remain on your credit file for up to seven years.
However, do the banks know about your past if your credit file with Veda Advantage no longer has any defaults, bankruptcy or part 9 agreements on it?
If you have a current loan with a specialist lender then some banks will ask why you are with that lender. Even though your credit history is now clear, they may enquire about your past or ask for additional information.
Lenders never forget about one of their own defaults. For example if you didn’t pay a credit card with a particular bank then that bank is unlikely to ever approve a loan for you. Some lenders have cross referenced databases in which case they are unlikely to lend to you as well.
Lenders will also remember the past conduct on any current loans or accounts that you have. For example if you have a mortgage and three years ago you missed many repayments then the lender may not approve a loan increase for you even though you now have a perfect repayment history.
If you had a cheque account with a lender at a time when you had problems with your credit history then that lender is very likely to be aware of your past problems.
Our mortgage brokers will know which lenders can now accept you as a clear credit borrower and give you a chance to prove yourself again. Please call us on 1300 889 743 or enquire online and we will let you know your options.
Refinancing a Private Loan
Private lenders are high net worth individuals or mortgage funds that offer high rate unregulated loans secured by either a second mortgage or a caveat. Typically the private notes were advanced for business purposes and are supposed to be kept for less than a year.
Since the interest rates are often 2% to 6% per month (24% to 72% p.a.), it is important that you pay off the loan as soon as possible by selling the property or refinancing the loan. Check your loan contract because there are often high exit fees if the loan is repaid before the term is up.
Many banks will not accept a home loan application if the loan purpose is to refinance a private mortgage. However if you have made your payments on time then we can assist you to refinance to a lender that can consider your situation.
Refinancing a Bluestone mortgage
Many people are refinancing their current Bluestone home loans to lower interest rates with other lenders.
Bluestone is a non-conforming lender who specialised in helping people with impaired credit histories or who could not prove their full income. Unfortunately during the sub prime crisis they were unable to fund new loans and they withdrew from the market.
What are Bluestone’s exit fees?
The DEF (Deferred Establishment Fee) is applied if your loan is repaid in full (discharged) within the first 3 years and is calculated on the total loan amount. Lump sum repayments not leading to a full discharge do not trigger a DEF being charged.
Below are Bluestone’s exit fees as a percentage of the original loan amount:
Fixed for life / Ready Access option:
- Year 1 - 3%
- Year 2 - 3%
- Year 3 - 2%
Capped for life / Split Rate loans option:
- Year 1 - 4%
- Year 2 - 3%
- Year 3 - 3%
- Switching between loans may be available subject to the underwriting criteria at the time.
- If you switch from the “Fixed for Life” to the “Capped for Life” loan then you may be liable for a fixed rate break fee. Note that there are additional fees for this service
The above exit fees and costs are general figures and are subject to change. You should be aware of the costs involved before making your decision to refinance. Please enquire online if you would like more information regarding the exit costs of your mortgage with Bluestone.
Are Bluestone’s current interest rates competitive?
Bluestone experienced funding issues during the sub-prime crisis, and subsequently suspended most new lending in 2007 and 2008.
They also raised the interest rates on all of their existing customers’ loans to help pay for their higher funding costs. As a result of this Bluestone’s interest rates are not competitive.
About Bluestone mortgages
Bluestone was a leading financial services business which was established in Australia in 2000. They were quite a successful lender and expanded rapidly, even being recognised by Business Review Weekly (BRW) as one of the fastest growing companies in Australia.
Unfortunately their ability to fund loans was compromised by the sub-prime crisis. In 2012 they returned to the market with a range of specialist loans.
Bluestone is owned by a number of leading institutional investors such as Bank of Scotland International and Crescent Capital Partners, however the group operates two core divisions:
- Bluestone Servicing
- Bluestone Capital Management
Bluestone Servicing offers a range of portfolio management services to third parties such as Bond investors, the banks, trustees and administrators inlcuding:
- Core servicing (customer and loan administration)
- Special servicing (collections and arrears management)
- Standby or backup servicing
- Trust management
Over the years Bluestone Servicing has developed a technology platform that allows multiple portfolios and asset classes to be managed on a single platform. This enables a flawless and accurate transfer of portfolios from third party systems.
Bluestone Capital Management was founded in 2008 and specialises in the acquisition and management of portfolios of loans, particularly under-performing and non-performing loans to consumers.
Portfolio sales can be particularly attractive to vendors looking to cap their exposure and either release capital, or reduce the risk that further capital will be needed to support under-performing loans.
On behalf of institutional and retail investment, Bluestone Capital Management draws on its extensive organisational experience in credit analysis, financing and management of receivable portfolios.
Refinancing a Liberty Financial mortgage
Liberty Financial is a specialist lender that has helped thousands of Australians, who do not meet standard bank criteria, to obtain a home loan.
Their common sense approach to lending means that people with an impaired credit history are given a fair go.
They were the first non-conforming lender in Australia and are still trading.
Liberty offers an extensive range of loans to suit all kinds of borrowers, and offers competitive home loans to borrowers with a good credit history as well as those who need specialised financial assistance or who have credit blemishes.
Their range also includes car loans for consumers and for businesses, commercial property loans, cash flow finance, and floor stock finance for car dealerships.
However most Liberty mortgages are not designed to be used for the long term. For the majority of borrowers the ultimate goal is to refinance their non-conforming loan with a mainstream lender with a lower rate or to refinance to Liberty’s clear credit loan product.
What are Liberty’s exit fees / costs?
Liberty Financial charges the following fees on their loans:
- Rebatable Termination Fee (RTF) - $0 for Star / Nova loans. Private loans attract a fee of up to 4% of the original loan amount which is due if the loan is not paid out at maturity or is paid out early. Note that NCCP regulated loans (excludes private loans) set-up after the 1st July 2011 do not have an RTF.
- Discharge Fee - $395 (plus legal fees) is payable when a discharge is requested, whether it proceeds or not.
- Break Fee - Applicable to fixed rate loans only. Please call Liberty Financial for a quote.
If your loan was advanced before the 1st of July 2011 then there may be additional exit fees not listed above.
You should be aware that the above figures are only general and are subject to change in accordance with the lender’s policy. For more information please call us on 1300 889 743 or enquire online and one of our specialist mortgage brokers can work out the cost of refinancing your loan.
Are Liberty’s current interest rates competitive?
Just like with most non-conforming lenders, it is important for you to review your interest rate regularly and to see if you qualify for a better deal.
If your credit history has improved and you have a proven history of making repayments on time, then you may qualify with a major bank or with Liberty’s lower rate “AAA” mortgage.
About Liberty Financial
Liberty Financial is a highly regarded and well established financial services group, backed by global banks such as Deutsche Bank, Credit Suisse and the National Australia Bank.
Liberty was founded in Australia in 1997 and introduced specialist lending to our country. Their lending policies recognise good people who are not being serviced or being serviced poorly by traditional lenders.
Refinancing a Pepper mortgage
If your credit history is now clear then you may qualify to refinance your Pepper home loan to a major lender.
The majority of Pepper’s borrowers had issues such as:
- Part 9 debt agreement
- Numerous defaults on their credit file
- Limited income evidence (low doc)
If these issues have been resolved and your credit history is clear then lenders will view you as a prime customer.
Your repayments with Pepper must have been on time for at least six months, ideally longer.
What are Pepper’s exit fees / costs?
Pepper do not charge any early discharge, exit or break fees.
Like any non-conforming lender, Pepper’s loans have a higher interest rate and risk fee than standard banks. As a borrower, you want to refinance your Pepper loan as soon as all your defaults are clear and you are eligible for a home loan with a standard lender.
Our brokers are experts in Pepper’s loans, policies and guidelines. Call us on 1300 889 743, or enquire online to find out how we can help you refinance with a standard lender.
Are Pepper’s current interest rates competitive?
Compared to standard lenders, their interest rates are high. For a non-conforming lender, Pepper is competitive with their prices.
Pepper is a non-conforming lender who specialises in applications from people with bad credit, previous bankruptcies, discharged part 9 agreements, and mortgage arrears.
They are aggressive in their pricing for the non-conforming market and in some cases our mortgage brokers use Pepper as the stepping stone to a cheaper lender.
About Pepper AustraliaEstablished in 2001, Pepper have a strong background in residential mortgage finance.
Funded by several banks and institutional investors, Pepper have the required funding to stay competitive.
Pepper specialises in providing solutions for customers that cannot meet the credit guidelines of the major banks. They are one of the few lenders that accept high risk customers.
Refinancing a La Trobe Financial loan
La Trobe Financial is a specialist lender that has been operating since 1952 and has been recognised for its innovation and stability through many financial crises.
Their funding model is different to other lenders in that they obtain most of their funds from investors rather than from banks.
La Trobe mortgages are only designed to be short term loans. In many cases La Trobe cannot negotiate significantly reduced interest rates for their borrowers even when their credit history is clear, so in most cases it is best to refinance.
La Trobe mortgages that are NCCP unregulated may be subject to exit fees, please refer to your original loan offer for the full details.
Refinancing an MKM Capital loan
MKM Capital is a specialist lender with its own private funding. This gives MKM the flexibility to have their own lending policies and unique products.
They specialise in lending to people with serious credit impairment that may not be considered by other bad credit lenders. Their loans are usually designed to be kept for between six months and a year before being refinanced.
MKM Capital’s interest rates are significantly higher than the banks. If you can qualify for a bank loan then you should refinance as soon as possible.
Apply to refinance your bad credit loan
The next step is to speak to a specialist mortgage broker such as ourselves and find out if you are eligible for a loan. Please call us on 1300 889 743 or enquire online to discuss your situation with one of our experts.