Exploring the Fresh Start Home Loan
If you’ve had some credit issues, the Fresh Start Home Loan could be a great option to consider. Credit problems might include things like adverse items on a credit report, loan arrears, a discharged bankruptcy or no asset procedure (NAP_, or an outstanding Property Law Notice. A default can stay on your credit report for five years, and banks often decline lending applications when they see this “bad credit.”
The Fresh Start Home Loan is designed to help people with a tainted credit history get into home ownership and prove themselves. While repayments are higher for the first year, they will reduce to standard interest rates after a year of timely repayments.
Even if the Fresh Start Home Loan isn’t the right fit for you, we’ve successfully helped other clients with credit defaults get approved for loans.
We’ll need to see a copy of your credit check, confirm the amount, and have a good explanation. The smaller the debt, the better, and it depends on who it was with and when it was paid.
Reach out if you need a hand navigating your situation! 😊
About the Fresh Start Home Loan
The Fresh Start Home Loan, offered by the New Zealand-owned Co-Operative Bank, is designed for people with credit issues who show an ability to clean up their track record. This loan gives clients another chance to prove themselves, with the opportunity to drop down to standard interest rates after a year of timely repayments.
This loan is for those who have had credit problems, such as adverse items on a credit report, loan arrears, a discharged bankruptcy, or an outstanding Property Law Notice.
The criteria include:
- A maximum loan-to-value (LVR) of 80%
- Credit issues must be a one-off issue with a fair explanation
- The loan purpose must be for the purchase or refinance of an owner-occupied property
What’s the catch?
The interest rate is higher than normal bank interest rates and even higher than some non-bank lenders.
The Fresh Start Home Loan interest rate is 2% higher than the bank’s advertised home loan rates, but this low equity margin will be added to the special rates. The low equity margin remains for 12 months, after which the bank will review your account conduct. If the loan has been managed to the bank’s satisfaction, the margin will be removed.
Most people opt for a 12-month fixed rate as it is the lowest rate available and matches the timeframe needed before the low equity margin can be removed.
It’s a bit like having bridging finance for 12 months but with the benefit of a predetermined exit to a bank loan. While the initial 12-month interest rate might be higher than some non-bank lenders, the removal of the low equity margin makes it a good option to consider.
Case study example:
Andrew and Abby were looking to purchase the house they were renting from Andrew’s parents.
Andrew was subject to a no asset procedure which was discharged five years ago and he is now showing a good credit score.
We were able to secure a fresh start home loan for them with The Co-operative Bank who added a 2% margin onto their special 12 month loan rate. This will fall away after 12 months of good account conduct, and coincides with their fixed rate expiry period.
One transaction with the bank avoided the need to try a non-bank lender first and then look to refinance later once the no asset procedure (NAP) dropped off their credit check. The loan allows a fresh start to allow the clients to focus on meeting their new mortgage repayments and means they can continue on standard bank rates following this initial period.
How to Apply for a Fresh Start Home Loan
You have a couple of options:
- Approach the bank directly: The downside is that you only get one chance, and if you present your application incorrectly, it could be declined.
- Contact me to help with your application: Standard mortgage brokers might not specialize in these types of applications.
Like going directly to the bank, you only get one chance.
Feel free to reach out if you have any questions or need further assistance! 😊
