10 Non-standard mortgages that might suit your needs

 

 

One size does not fit all

 

Non-standard mortgages might suit your needs when you are not a typical borrower. Not all borrowers fit into the main bank criterion. However, there are alternatives for those who want to purchase a property. There is a range of non-standard mortgages available alongside traditional home loans. These non-standard mortgages are often tailored to meet borrowers’ specific needs or financial situations.

 

1. Low Documentation (Low Doc) Loans

 

These are suitable for self-employed individuals or those with irregular income who may not have all the documentation required for a standard loan. They typically require less documentation to verify income and assets. This type of loan uses a self-verification process where the borrower must sign a declaration certificate about their earnings. Low-doc loans generally do not require the same evidence as traditional loans but you will require specific types of evidence of your income to satisfy income.

 

2. Interest-Only Loans

 

With this type of loan, borrowers only pay the interest on the principal amount for a certain period, usually between one to five years. These loans benefit investors or those who anticipate an increase in income in the future. On an interest-only home mortgage, your repayments only cover interest on the amount borrowed (the principal). The repayments are lower because no principal is coming off. For a set period – for example, five years – you pay nothing off the amount borrowed, so it does not reduce. At the end of the period, you owe what you borrowed – the balance didn’t reduce. At the end of the interest-only period, the loan will change to a ‘principal and interest’ loan. You’ll start repaying the principle, as well as interest on that amount – a higher repayment.

 

3. Caveat loans

 

Are a type of private finance or mortgage lending product that is a non-bank type of loan. Caveat loans can also be referred to as solicitor loans or private second mortgages. Private caveat loans are helpful in certain scenarios because they do not require proof of income, tax returns and financial records are not needed to qualify. The borrower’s credit score is irrelevant and offers a short-term user-friendly option for self-employed or older applicants.

Private Caveat Lending provides borrowers with fast legitimate access to capital by leveraging the equity within an existing property for a variety of alternatives including that may be used as a line of credit, bridging loan, home loan, or private residential or commercial mortgage refinance.  Caveat loans may even allow cash flow to fund property developments, construction loans, even as a business overdraft that can consolidate business creditors, tax debts, and a variety of other commercial needs such as the purchase of stock.

 

4. SMSF (Self-Managed Super Fund) Loans

 

A Self-managed Super Fund Loan is an investment loan in which can give an SMSF the ability to use its funds as a deposit to purchase an investment property and borrow the remaining amount required to fund the purchase.   This can allow an SMSF to invest in properties that it may not otherwise have the funds to immediately purchase. Depending on the lender, an SMSF loan may allow you through your SMSF to purchase a residential, commercial, or rural investment property with interest-only repayment options. The maximum Loan to Valuation (LVR) ratio for loans often differs depending on type of the property you are purchasing for the loan. Some lenders may only lend to purchase certain types of properties.

 

SMSF loans have strict requirements under superannuation law and normally require the establishment of a separate trust to hold the property. To take out an SMSF loan, you’ll first normally need to engage with a legal professional experienced in SMSF lending to help set up the required structure for an SMSF loan and ensure that any loan will meet the superannuation law requirements.

 

5. Reverse Mortgages

 

Designed for retirees, reverse mortgages allow homeowners to borrow against the equity in their homes. Reverse mortgage interest is calculated on the daily balance outstanding and added monthly to your loan account, meaning your loan balance will increase over time. Once you move permanently from your home, the entire loan balance will be payable within 12 months. The amount of equity you can draw down is determined by your age, property value, and other loan approval criteria. The loan is repaid when the borrower sells the property, moves into aged care, or passes away.

 

6. Bad Credit Mortgages

 

These are designed for borrowers with a poor credit history. Lenders may offer higher interest rates or require a larger deposit to mitigate the risk associated with lending to someone with bad credit.

 

Bad credit could be defined as:

  • missed or late payments on credit cards, bills or loans;
  • multiple enquiries/applications with various lenders in a short time frame;
  • defaults;
  • mortgage arrears;
  • court Judgements, writs and summons;
  • unpaid defaults and

 

7. No-doc loans

 

Some lenders offer specialty loan solutions, such as No Doc loans for the self-employed or those who have a unique set of circumstances, where they are unable to provide company financial documents or tax returns as proof of income. These types of loans are unregulated and as such are usually provided by private lenders or private funders. As these loans come with an increase in risk to the lender the borrower will often be charged much higher interest rates and other fees. Under the National Consumer Credit Protection Act (NCCP) funds secured with an unregulated loan can only be used for business or investment purposes.

 

8. Home Equity Access Scheme

 

The Home Equity Access Scheme is a voluntary non-taxable loan from the Australian Government. If you own property, the Scheme allows you to use the equity in your home by borrowing against the value of your property. You receive that loan as a fortnightly income stream, a lump sum or a combination or both. Also known as equity release loans, these mortgages allow homeowners to access the equity in their property for purposes such as renovations, investments, or other large expenses.

 

9. Foreigner Mortgages

 

Designed for non-residents or temporary residents, these mortgages allow foreign nationals to purchase property in Australia. They often come with stricter eligibility criteria and may require a larger deposit.

 

10. Green Mortgages

 

These loans offer discounted interest rates or other incentives for properties that meet certain energy efficiency or sustainability standards. They aim to encourage environmentally friendly home purchases.

 

Loans for all circumstances

 

These loans exist to cater to the whole population of borrowers. You should seek professional financial advice to ensure you choose the right option for your circumstances because many of these loans are less well-known and understood. Additionally, regulations and availability of these mortgages may vary over time as regulations and borrowing practices affect what is offered.