Short Term Lenders
There are a variety of reasons someone will take out a loan with a short term lender, but you can guarantee the interest rate is never the cause. In fact, short term loans are generally short term because the interest rate is a lot higher than what’s usually on offer. This is because, often, there is a bigger risk for the short term lender. As such, they increase the interest rate.
Just some of the reasons someone may need to use a short term lender are as follows.
Newly Self-Employed
Providing you meet the lender’s criteria, you can take out a home loan just 1 day after registering for your ABN. It sounds crazy but as long as you’re in the same industry and your previous PAYG income can service the loan, you’ll be considered.
Bad Credit
Bad credit can cover a broad range of things; from too many overdrawings on your account, to credit defaults and even discharged bankruptcy.
Outside-the-box Income
Some short term lenders will accept income that other lenders and banks will either not accept, or will only accept a portion of. Doing this can increase the total borrowing capacity.
Low Deposit
Short term lenders have an option to use ‘in-house’ Lenders Mortgage Insurance. This means that at times you can borrow up to 95% of the purchase price and they will add their Lenders Mortgage Insurance charge onto the loan. This can take the total loan amount to nearly 100% of the property value.
Non-genuine savings
When you need Lenders Mortgage Insurance (i.e you’re borrowing more than 80% of the value of your property) then you need to show genuine savings; which is, holding at least 5% of your deposit in your account for at least 3 months. This is really strict and not something you can negotiate… Unless you are using a short term lender who, as mentioned above, can use their own ‘in-house’ Lenders Mortgage Insurance which will consider non-genuine savings deposits.
It goes without saying that once you get your new loan with a short term lender, your number one goal will be to repay as much of the loan as quickly as you can. This means you will be building as much equity as possible whilst increasing your credit score, and you will be able to look at moving your loan to a better interest rate (either with a new lender or the current one) as soon as possible. Your broker will be conducting annual reviews on your loan with you so that each year you can reassess where you are and when you are ready to move to a lower interest rate to save money.
So if you think you may have an application that doesn’t ‘fit the box’ contact me to see what your estimated repayments would be; that way you can decide if it’s worth getting into the property market now or holding off.