A non-conforming home loan is a loan offered to borrowers who don’t meet the standard lending criteria of their bank or major lender. These may include applicants who have a poor credit history, have previously declared bankruptcy or are self-employed.
The main difference between a non-conforming and a standard home loan is within the fee structure and interest rate. In order to finance a non-conforming borrower, lenders will usually set a higher interest rate and higher entry and exit fees than a normal mortgage. This is to help lenders compensate for the risk they take when offering this type of loan.
What you need to know
These loans work similarly to typical home loans in that, if approved, they can be offered on a variable, fixed or split rate. Depending on the product, they can also come with a range of features such as an offset account, a redraw facility or the ability to make extra or lump sum repayments.
In order to finance a non-conforming borrower, lenders will usually set a higher interest rate and higher entry and exit fees than a normal mortgage. This is to help lenders compensate for the risk they take when offering this type of loan.
The interest rate and fees offered will ultimately be determined by the lender based on the perceived level of risk and personal circumstances of the borrower.
If the borrower meets their loan repayments and over time is able to improve their credit rating, they may be eligible for a lower rate with the same lender or may have the opportunity to refinance to a cheaper home loan down the track.
A non-conforming home loan may assist people in the following circumstances
- Poor credit history – this includes people who have a record of late payments, previously declared bankruptcy, or a history of defaulting on their loans
- Self-employed – they may be unable to show proof of income
Unstable or irregular income – those who regularly change jobs or work on a casual or contract basis - New migrant– people who have just moved to Australia and cannot verify their previous credit history
- Have a tax debt
- Retired
- Recently started a new business or job
- Have other debts to consolidate – credit card or personal loans
- Have been refused credit in the past
Before applying for a non-conforming home loan, look at the fees and interest rates on offer as they can be significantly higher than most traditional home loans.
Also closely read the repayment conditions set out by your lender. In particular, look to see what the exit fees are if you decide to exit or refinance your loan within a certain period of time. These fees could be particularly high within the first few years.
Speak to one of our consultant to discuss as to what interest rates and fees may apply to your personal situation.
We partner with several lenders in Australia who specialise in providing non-conforming home loans. Speak with one of our consultants for more information.
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