Non-Bank Refinancing: When Your Lender Won't Extend Your Mortgage

Your fixed-rate mortgage expires in three months. You've banked with the same lender for eight years, never missed a payment, and your property has increased in value. You expect refinancing to be straightforward—a simple rollover to a new fixed term.

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Then you receive the letter: "We regret to inform you that we're unable to offer refinancing on your property. Your loan will convert to our variable rate at 9.2%, or you'll need to arrange alternative financing."

You're shocked. What changed? You lost your job and started contracting six months ago. Your income actually increased, but now you're self-employed. Or perhaps you had a credit hiccup during Covid. Or your property is a cross-lease. Or you're over 65. Whatever the reason, your bank has decided you no longer meet their current lending criteria—even though you've been a model customer for years.

This is where non-bank refinancing becomes essential. When banks won't extend or renew your existing mortgage, alternative lenders provide refinancing solutions that keep you out of expensive variable rates and give you time to resolve whatever issue the bank has identified.

Understanding non-bank refinancing

What is non-bank refinancing?

Non-bank refinancing is replacing an existing bank mortgage with alternative lending when your current bank declines to renew or extend your facility. This happens when:

• Your circumstances changed (employment, income, age, health)
• Bank policies tightened since your original approval
• Property factors emerged (cross-lease, leasehold, consent issues)
• Credit issues appeared on your record
• Life changes occurred (separation, inheritance, business changes)

The key distinction: You're not in arrears or default. You've been paying your mortgage reliably. The bank simply won't continue lending under their current policies—even though you're the same customer they approved years ago.

Common reasons banks decline refinancing

The frustrating reality: Banks assess refinancing applications as if you're a new customer. Your payment history means less than their current policy requirements.

How non-bank refinancing works

Alternative lenders assess refinancing differently:

The goal: Provide 12-24 month refinancing facility that gives you time to resolve the issue preventing bank lending, then refinance back to bank rates.

Real-world case study: Karen's self-employment situation

Karen Thompson, 52, owned a $680,000 home in Tauranga with a $340,000 mortgage. She'd banked with the same lender for 11 years and never missed a payment. Her mortgage was on a three-year fixed rate at 6.4%, expiring in September.

The employment change

In March, Karen's employer restructured and made her role redundant. With 20 years' marketing experience, Karen decided to establish her own consultancy. Within two months, she had three major clients on retainer contracts providing $115,000 annual income—more than her previous $98,000 salary.

Karen's financial position:

• Property value: $680,000
• Mortgage: $340,000 (LVR: 50%)
• Income: $115,000 (self-employed, 6 months trading)
• Other debt: None
• Credit history: Perfect
• Payment history: Never missed a payment in 11 years

The bank's position

In July, Karen contacted her bank about refinancing her September expiry.

Bank's response:

• "Self-employed borrowers require minimum 2 years' trading history"
• "We cannot verify income with only 6 months' trading"
• "Must provide 2 years' financial statements and tax returns"
• Outcome: Declined for refinancing

Bank's alternative offer:

• Convert to variable rate at 9.2%
• Review in 18 months when 2 years' trading reached
• Must provide financial statements at that time

Karen's frustration: "I'm earning more than before, my mortgage is only 50% LVR, I've paid them perfectly for 11 years. They're happy to keep charging me 9.2% variable, but won't refinance me at 6.8% fixed rates? That's an extra $680/month just because I'm self-employed for six months."

The Luminate solution

Luminate provided an 18-month refinancing facility:

Loan structure:

• Amount: $340,000 (existing mortgage balance)
• Property value: $680,000 (LVR: 50%)
• Interest rate: 10.25%
• Term: 18 months
• Structure: Interest-only
• Setup fee: $3,400 (1%)
• Legal fees: $1,800

Assessment approach:

• Reviewed 6 months' business bank statements showing consistent income
• Assessed retainer contracts with established businesses
• Evaluated 20 years' professional marketing experience
• Recognised 11-year perfect payment history
• 50% LVR provided strong security

Cost comparison:

• Bank variable rate: $2,604/month at 9.2%
• Luminate rate: $2,904/month at 10.25%
• Additional cost: $300/month

18-month refinance plan:

• Continue building trading history
• Maintain perfect payment record
• Engage accountant for first-year financial statements
• Approach bank at 18 months with 2 years' trading history
• Refinance back to bank fixed rates

Karen's perspective: "Paying an extra $300/month is annoying, but it's $380/month less than the bank's variable rate would have been. And in 18 months, I'll have the 2 years' trading history the bank requires. Luminate actually looked at my situation—my income, my experience, my payment history—rather than just applying a blanket policy."

The outcome

18 months later:

• Business thriving with $128,000 annual income
• Two years' trading history established
• First-year financial statements completed
• Tax returns filed showing strong income
• Refinanced to bank at 6.95%
• New monthly payment: $2,217 (30-year P&I)

Total cost of non-bank refinancing:

• Setup and legal: $5,200
• Interest premium over 18 months: $5,400
• Total: $10,600

Alternative cost if stayed on bank variable:

• 18 months at 9.2%: $46,872
• 18 months at 10.25%: $52,272
• Difference: Bank variable would have cost $5,400 less
• But: Bank variable gave no certainty and could have increased further

Karen's reflection: "The $10,600 bought me certainty, a clear path back to bank rates, and recognition of my actual financial situation rather than rigid policy. Worth every dollar to avoid the stress of variable rates and potential increases."

When non-bank refinancing makes sense

✓ Consider this option when:

1. Your bank declines refinancing but you've paid perfectly

If you have:

• Excellent payment history with current bank
• Strong equity position (LVR under 70%)
• Clear reason for decline (policy change, circumstance change)
• Ability to service at slightly higher rates
• Plan to resolve the issue preventing bank lending

2. Self-employed less than 2 years

Banks require 2 years' trading history. Non-bank refinancing bridges the gap when:

• Income is stable and verifiable
• Business contracts support income claims
• Professional background strong
• Trading history shows consistency
• Path to 2-year milestone clear

3. Credit issues in your past

Historic credit problems don't reflect current reliability:

• Defaults or judgements now resolved
• Bankruptcy discharged years ago
• Credit issues during Covid now behind you
• Current payments all on time
• Credit score improving

4. Age-based bank decline

Banks have maximum age limits. Non-bank considers:

• Actual income and serviceability
• Life expectancy and health
• Equity position
• Repayment plan (sale, downsize, reverse mortgage later)
• Individual circumstances

5. Property type issues

Banks tightened lending on certain property types:

• Cross-lease properties
• Leasehold properties
• Apartments (some banks)
• Properties with minor consent issues
• Unusual construction

6. Buying time to resolve temporary issues

Use non-bank refinancing while you:

• Complete 2 years' self-employment
• Finalise property settlement after separation
• Resolve minor property compliance issues
• Build credit score after historic problems
• Reach income level that meets bank DTI requirements

✗ This may not be suitable when:

1. You're already in arrears or default

Non-bank refinancing is for customers in good standing who banks decline for policy reasons. If you're behind on payments:

• Address arrears first
• Speak with current lender about hardship
• Non-bank refinancing can't solve inability to service debt
• May need to consider sale or other solutions

2. Property value has declined significantly

If your LVR increased due to value decline:

• May not qualify for refinancing at current debt levels
• Consider paying down debt first
• Assess whether property retention makes sense
• Alternative may be sale or restructure

3. The underlying issue won't resolve

Non-bank refinancing buys time, but needs an exit strategy:

• If you'll never meet bank criteria again, long-term solution needed
• If income declining, serviceability worsens at higher rates
• If property issue can't be resolved, may need to sell
• Must have realistic path back to bank lending or alternative plan

4. You have other bank options

Before using non-bank refinancing:

• Try multiple banks (policies vary significantly)
• Consider smaller or specialist banks
• Explore options with help from mortgage broker
• Some banks more flexible on specific issues than others

Alternatives to non-bank refinancing

Alternative 1: Try multiple banks with a broker

Don't assume all banks will decline. Policies vary significantly:

Example variations:

• Bank A: Requires 2 years' self-employment
• Bank B: Accepts 12 months with strong trading history
• Bank C: Considers 6 months for established professionals

Benefits of using broker:

• Knows which banks accept what situations
• Presents application professionally
• Can approach multiple banks simultaneously
• No cost if successful (bank pays commission)

When this works: Your situation falls into some bank's acceptable criteria, just not your current bank's.

Alternative 2: Stay on variable temporarily

If non-bank rates seem too high:

Consider variable rate while you:

• Build the required trading history
• Resolve the credit issue
• Fix the property compliance problem
• Reach the age/income/time threshold needed

Advantages:

• No refinancing costs
• No setup fees
• Flexibility to refinance when ready

Disadvantages:

• Variable rates can increase
• No certainty on monthly payments
• May cost more than non-bank fixed over time
• Stress of uncertain rates

Best for: Very short timeframes (3-6 months) until bank criteria met.

Alternative 3: Pay down debt to improve LVR

If your issue is borderline:

Strategy:

• Use savings to reduce mortgage
• Improve LVR from 75% to 65%, for example
• May shift you into acceptable criteria
• Can access lower rate tiers

Example:

• Current: $480,000 debt, $640,000 value = 75% LVR
• Pay $64,000 to reduce debt to $416,000
• New LVR: 65%
• May now meet bank refinancing criteria

Best for: Situations where LVR is the primary concern.

Alternative 4: Sell and downsize

If refinancing isn't viable:

Consider if:

• Can't service debt even at bank rates
• Property issues can't be resolved
• Age makes ongoing lending unlikely
• Prefer to release equity and reduce debt

This isn't failure— sometimes downsizing or restructuring makes financial sense regardless of lending availability.

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Cost comparison: Non-bank refinancing scenarios

Scenario 1: $350,000 loan, 18-month term

Non-bank refinancing (10.25% interest-only):

• Setup fee: $3,500
• Legal fees: $1,800
• Interest over 18 months: $53,813
• Total cost: $59,113

Bank variable rate (9.2% interest-only):

• No setup fees
• Interest over 18 months: $48,300
• Total cost: $48,300

Difference: $10,813 premium for non-bank certainty

Value proposition:

• Fixed rate certainty vs variable risk
• Active refinance plan vs uncertain future
• Professional assessment vs policy rejection
• Peace of mind vs stress

Scenario 2: $500,000 loan, 12-month term

Non-bank refinancing (9.75% interest-only):

• Setup fee: $5,000
• Legal fees: $1,800
• Interest over 12 months: $48,750
• Total cost: $55,550

Bank variable rate (9.2% interest-only):

• No setup fees
• Interest over 12 months: $46,000
• Total cost: $46,000

Difference: $9,550 premium

Scenario 3: $800,000 loan, 24-month term

Non-bank refinancing (9.5% interest-only):

• Setup fee: $6,000
• Legal fees: $2,200
• Interest over 24 months: $152,000
• Total cost: $160,200

Bank variable rate (9.2% interest-only):

• Interest over 24 months: $147,200
• Total cost: $147,200

Difference: $13,000 premium

Important consideration: These comparisons assume variable rates remain constant. If variable rates increase during the period (which they often do), the non-bank fixed rate could actually cost less or similar.

Frequently asked questions

Q: How is this different from refinancing with another bank?

A: Bank-to-bank refinancing is always preferable if available—lower rates, longer terms, standard conditions. Non-bank refinancing is specifically for situations where all banks decline due to policy restrictions. It's the solution when bank refinancing isn't an option.

Q: Will non-bank refinancing affect my credit score?

A: The application process involves a credit check, which has minimal impact. Successfully maintaining a non-bank facility and refinancing back to a bank actually demonstrates creditworthiness. What damages credit is missing payments or defaults—which non-bank refinancing helps you avoid.

Q: Can I refinance back to my original bank?

A: Yes, if you meet their criteria when you reapply. Many customers refinance back to their original bank once they've resolved the issue (reached 2 years' trading, built required credit history, etc.). Some banks even view you more favorably for having addressed the issue professionally.

Q: What if I can't refinance to a bank after 18-24 months?

A: Most customers successfully refinance to banks once they've resolved the qualifying issue. If bank refinancing remains unavailable, options include: extending with Luminate (often at improved rates), trying specialist lenders, restructuring finances, or considering property sale if circumstances require.

Q: Do you refinance investment properties?

A: Yes, non-bank refinancing works for both owner-occupied and investment properties. Investment properties may have slightly higher rates (0.5-1% premium) but are regularly refinanced when banks decline due to investor lending restrictions.

Q: What's the maximum LVR for non-bank refinancing?

A: Typically up to 70% LVR for straightforward situations, occasionally up to 75% for strong applications. Higher LVRs make refinancing more challenging and expensive. If your LVR exceeds 75%, paying down debt first may be necessary.

Q: Can I make extra payments to reduce the principal?

A: Most facilities allow extra payments without penalty. This is encouraged as it: improves your position for bank refinancing, reduces interest costs, and demonstrates financial management. Confirm specific terms with your facility agreement.

Q: How long does non-bank refinancing approval take?

A: Typically 10-15 business days from application to settlement. Faster than bank refinancing (which can take 4-6 weeks) but requires similar documentation. If your existing mortgage is expiring soon, contact us at least 6-8 weeks beforehand to ensure smooth transition.

Q: What if my property needs a revaluation?

A: Revaluation is sometimes required, typically costing $600-$1,200. If your property has increased in value since purchase, this can improve your LVR and potentially your interest rate. If values declined, it may affect available lending. Council valuations can sometimes be used if recent and appropriate.

Preparing for bank refinance

The goal is always to refinance back to bank rates. Here's how to prepare:

Building your refinance case

For self-employment issues:

• Maintain consistent income through business
• Keep excellent records and bank statements
• Engage accountant for professional financial statements
• File tax returns on time
• Reach 2-year trading milestone
• Consider business structure (sole trader vs company)

For credit issues:

• Continue making all payments perfectly on time
• Pay off any remaining defaults or judgements
• Build positive credit history
• Don't apply for multiple credit products
• Monitor credit score improvements
• Prepare explanations for historic issues

For age-related issues:

• Demonstrate ongoing income capacity
• Show clear repayment strategy
• Consider term reduction or life insurance
• Explore downsize or reverse mortgage options
• Provide health and life expectancy information

For property issues:

• Resolve consent or compliance problems
• Obtain code compliance certificates
• Fix any identified defects
• Get updated valuations showing value
• Consider property improvements

Timeline for bank refinance

Start early: Don't wait until your non-bank facility expires. Begin refinance process 6-9 months into the term to ensure smooth transition.

Regional and property considerations

Property types commonly requiring non-bank refinancing

Cross-lease properties:

• Many banks tightened lending
• Luminate regularly refinances cross-lease
• Rates similar to freehold
• Exit to banks possible once market conditions improve

Leasehold properties:

• Banks often decline or require low LVR
• Assessment based on lease terms and ground rent
• Longer leases (50+ years remaining) preferred
• Clear exit strategy important

Apartments:

• Some banks restrict lending on apartments
• Body corporate issues can affect bank appetite
• Size and location matter
• Luminate assesses individual merit

Rural or lifestyle properties:

• Large sections sometimes concerning to banks
• Luminate comfortable with lifestyle blocks
• Valuation and marketability key factors
• Standard residential lending approach

Working with Luminate across New Zealand

Non-bank refinancing available throughout New Zealand:

• Auckland, Wellington, Christchurch: Most applications
• Regional centres: All serviceable
• Rural areas: Property-dependent but available
• Remote locations: Case-by-case assessment

All applications assessed individually regardless of location. Regional property markets understood and incorporated into assessment.

Ready to refinance when your bank won't extend?

Don't let bank policy changes force you onto expensive variable rates or into property sale. Contact Luminate Financial Group to discuss how our non-bank refinancing solutions can provide the time you need to resolve lending issues and return to bank rates.

📞 Call 0800 333 400
📧 Email askus@luminate.co.nz
🌐 Visit luminate.co.nz

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