The official cash rate in NZ has been on a steady decline over the last 5 years. The latest cut drove it to 1% and triggered a ripple effect to lenders who in turn cut loan interest rates. Homeowners have been enjoying this steady decline. Many have opted to refinance and shift to differently structured mortgages or cheaper loans. The end goal is to make savings on your home loan payments.

Refinancing home loans may be an easy move if your credit score is in the green. But what if your credit score sank and it’s not the same as when you took the mortgage? What if you are in the red? Can you refinance your home loan with bad credit?

Read on and find out what are your options

What is “bad credit” and What are the odds of refinancing a home loan with bad credit. 

Like many other markets across the globe, lenders in New Zealand are increasingly relying on credit scores as an important criterion for approving loans. However, it is not the only criterion. A credit score is a statistical approximation of the likelihood of payment of a loan based on a historical assessment of how you’ve managed your financial affairs.

A good credit score (often above 700 out of a possible 1000) implies that the borrower is a good financial manager who is more likely to repay a loan. The opposite applies to a low score (below 500). Most conventional lenders peg the home loan credit score at above 500 A lower score would trigger risk mitigation measures by the lender such as a higher interest rate or tougher requirements like mortgage protection insurance or both.

When your credit score is not so good, you’ll have a harder time refinancing the mortgage. Your goal is to convince the lender of your trustworthiness without using the credit score. This may be hard. But there are options which you can explore like alternative lenders who have less stringent credit score rules.

Where to check for financial assistance

There are lenders in the market who have shaped their business models to cater to people who have had credit issues previously and it affects their credit score. It’s an excellent opportunity for you to get your financial footing back, and rebuild your credit score.

Bad-credit home loans in New Zealand are typically offered by non-bank mortgage lenders such as building societies and credit unions. Since these institutions are often privately funded, they are not subjected to the same rules as banks. Thus, they are more flexible and can take in odd cases. But you still must make your application worthwhile. A mortgage broker for bad credit mortgages can give you directions on how to do this.

Making your application more attractive – highlight your positives. 

Lenders, even non-bank mortgage lenders, often view borrowers with low credit scores as risky borrowers. Therefore, for your application to catch the attention of a lender, you may need to highlight additional qualities that reflect positively on you. For instance, you can show that you’ve held a steady job over the last couple of years.

It’s crucial to show that you have a steady income. This is your ticket for fixing your credit score.

Show the lender that you have savings 

You can also show that you have savings in your bank account. Lenders like borrowers who have a sort of cash reserve which could in handy in the event of an emergency. However, a huge savings balance doesn’t count as much as consistent and steady savings over a long time. Consistent savings over time also depicts that, despite your low credit score, you have good financial discipline.

Bring on board a guarantor

Before you get a non-bank mortgage lender to trust you, you may require to convince someone close to you that you are a responsible borrower and get them to guarantee your loan.

This may be hard to do since it means that they will be on the hook if you fail to repay. However, your spouse or a close relative may be willing to get into the mortgage boat with you and co-sign. But he or she must have a good credit score. Otherwise, their signature will not have much of an effect on your application.

What will a bad credit home loan cost you?

Bad credit mortgages are typically pegged at a higher rate than the average market rate. This is because of the perceived increased risk. But the opportunity cost – the benefits that you can secure – often compensate for the costs. This is especially so when you work with an experienced bad credit mortgage broker to secure a fair deal.

Better still, if you keep on a steady financial path and commit to improving your credit score, you’ll probably refinance the mortgage to a better deal in the future.

So, reach out to a bad credit mortgage broker and learn how you can refinance your home loan.