Non-bank home loan provider New Zealand Home Loans has taken a distinct dislike to the type of home loan which was largely responsible for putting its industry on the map: the revolving credit mortgage.
"We hate them," says NZ Home Loans general manager Phil Harris.
They might be worthwhile for the more sophisticated and disciplined borrower with many other options available to them from the banking community. And they might be great for those who don’t really need a loan.
But the trouble is, "the people who usually end up with them are quite different," less sophisticated and less financially secure, Harris says.
All too often, those who take out revolving credit loans end up owing just as much at the end of the loan’s term as they borrowed in the first place, he says.
Most New Zealanders exist on or below the average wage and aren’t used to dealing with large sums of money. Even faced with relatively small amounts of spending power, say $5,000 or $10,000, they tend to give in to temptation and spend it without worrying too much about the consequences.
Instead, his firm offers customers a "diminishing" loan. It provides borrowers with similar flexibility but has a built-in ever-decreasing borrowing limit over the life of the loan.
"We encourage most of our customers to borrow up to what they can comfortably afford," regardless of what their actual immediate needs are.
The term should be roughly the number of years each person has of working left before retirement, Harris says.
Then the customer has much of the same flexibility of a revolving credit loan but with the assurance that it will be paid off by the time they retire, Harris says.
He is all for flexibility and says that’s something banks don’t tend to provide. "You’ve just about got to give DNA to get anything from the bank," he says.
