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Is There A Difference Between First and Second Tier Mortgage Lenders?
Whether you own a home or are looking to buy, you need to know the difference between all of the types of financing options that a bank’s loan officer with try to push on you. Instead of only relying on a single bank, a mortgage broker will be able to offer you a full suite of financing options that will secure your mortgage at the terms you need and can be customized based on your specific financial situations. This article begins the discussion on the differences between general financing groups and why you may want to go with either a tier one or a tier two option.
What is a Home Mortgage?
Let’s get the basics down so that the more complex plans can build off of this foundation. A home mortgage is a loan that uses your house as collateral. For the life of the loan the bank is able to use the house as an asset that it can sell for its own purposes if you default on the mortgage. Often in New Zealand you are required to pay upwards of 20% or even 35% down payment on a home for the bank to give you a loan. That can be difficult for a lot of people. Further, there are future situations where you may want to access that equity that you have built up in the home with mortgage payments.
What is a Second Mortgage?
A second mortgage allows you to tap into the value that you have derived over time from paying down your first mortgage. The second mortgage basically secures a second loan on the value of the home that isn’t part of the first mortgage. Let’s do an example to make it clearer. If you house is currently worth $400K and your mortgage is sitting at $100K, you have $300K in equity that is sitting there not being used.
Often if you are doing renovations, they are called home renovation loans. Whatever the name, they operate very similarly. It is a secured loan that offers highly competitive interest rates for a fixed payment over a period of time. The terms can be negotiated similar to a first home loan, but your mortgage broker will be able to detail the terms much more accurately when you speak with them and provide your specific circumstances.
How Much Equity do I need for a Second Mortgage?
You will only be able to borrow up to your LVR rate. This is because there is an inherent risk in the loan industry. If a house needs to sell, it usually sells for below asking and below the mortgaged value. Lenders know this and traditionally won’t allow a home to be mortgaged for more than the LVR level of its appraised value.
It all depends on the client and their needs. We will look at a client’s full financial background, credit history, serving ability, and the home’s equity; assuming all pass, we start with the existing bank and a top-up loan, which will be both the cheapest and fastest option. Then comes a second mortgage or non-bank loan. Both of these options apply the 80% LVR rules. Like with our example above, your equity and LVR value could provide you up to $220,000; that is a nice chunk of change that your home has built up in equity.
A non-traditional financer, like a non-bank financing lender, can offer second mortgages with higher home equity percentages. Though your bank may be unwilling to provide you with up to 80% LVR, some non-bank financiers may be willing to do so.
What Can a Second Tier Mortgage be Used For?:
- Personal life event
- Debt consolidation
- Business Loan
- Construction Loan
There are several times in life when you may wish to obtain funds from the equity held in your home. Depending on your particular circumstance, we will work with you to hone the best option that allows you to make an improvement in your life or solve any problem. Banks can be less hospitable or not offer what you are looking for when trying to obtain a second mortgage and you therefore may need to go with a non-traditional lender. Non-bank lenders can offer funds much quicker and without as much red tape as a traditional lender, which may further aid your particular needs.
Second Tier Mortgage Lenders in NZ
A second-tier mortgage lender in NZ is not a bank. It is not a traditional financing organization but specializes in offering loans to all types of people in varying situations. These groups are also regulated, trusted, and organized to offer highly personalized and specialized loans to people that otherwise would not be able to obtain a loan from a bank.afford a home or a second mortgage. If you are looking to improve your life or solve a problem using your home’s equity, you may need to go with a second-tier lender. Second tier does not mean that it is less money or of lower quality than a first mortgage. It is just a legal categorization. Talk with your mortgage broker today to learn what each type of financing partner can offer you in the way of specialized loans for your specific circumstances. It may be that though you can afford a first-tier mortgage, a second-tier lender will provide you with better financial solutions You won’t know until you reach out and work through the numbers together.