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Lenders mortgage insurance secrets

September 20, 2010 By admin Leave a Comment

What is LMI?

Lenders Mortgage Insurance or LMI for short, is a once off fee you pay when you apply for a mortgage that is for more than 80% of the property value. The lender obtains insurance on your loan so that if you default they do not lose any money. The insurance does not cover you as the borrower, yet you still have to pay for the insurance premium!

How much will it cost me?

LMI is calculated on a sliding scale based on the value of the real estate you are offering as security, the size of your loan and also the percentage of the value that you are borrowing. This percentage is known as the Loan to Value Ratio or LVR for short. The larger your home loan and the higher your LVR then the higher the LMI premium will be.

Do I have to save up to pay my LMI?

No, most lenders will allow you to add the premium onto your loan. So if your LMI premium was $3,000 and your loan was $300,000 then the lender would lend you $303,000 so as not to effect the size of the deposit you would need to buy that property.

How can I save on my premium?

By reducing the amount that you borrow as a percentage of the purchase price you can greatly reduce your outlay. Have you asked your parents if they can help you with a larger deposit or if they can guarantee your loan using their home? This is a good first step, as if your loan is for 80% or less of the property value then you will not pay any LMI at all!

Other ways to reduce your premium are to try to borrow less than $500,000 or $300,000 as these are the cut off points where the fee increases dramatically. Also try to borrow less then 95% or 90% LVR as at these two benchmarks the fee will also increase. Did you know there was a $2,300 difference in the premium between a loan of $300,000 and a loan of $300,001? Incredible!

Is there a calculator I can use?

Yes, you can use an LMI calculator to work out the exact cost for your loan. This calculator works for most major lenders such as CBA, ANZ, Westpac, NAB, St George & Suncorp. It compares premiums from the major insurance companies such as Genworth and QBE LMI. Overall it will help you to compare the cost to you and work out if you can save money by applying with a different lender.

About the Author

Otto is a Mortgage Broker that has specialized in home loans for over 6 years. His company The Home Loan Experts is now one of the top mortgage broking firms in Australia.



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Filed Under: Australian Mortgages, Lenders Mortgage Insurance Tagged With: , , ,

Australia sub-prime crisis

September 20, 2010 By admin Leave a Comment

What makes Australia so special?

The USA, Europe and even many parts of Asia have had their economies devastated by the sub-prime mortgage crisis creating havoc with their banks and consequently the funding available to businesses in those countries. While Australia was never immune, these problems have been of a much smaller magnitude and consequently it is business as usual down under.

Australia was fortunate in that the Howard government introduced credit reforms in the mid 1990′s to prevent a slide in credit standards and to ensure that banks and other institutions had an adequate amount of capital to see them through such one off events.

As a result the four major banks have still been able to raise funds offshore thanks to their AA rating and smaller lenders have been able to raise funds thanks to government guaranteed deposit accounts.

How has the face of lending changed in Australia?

Compared to most other countries Australia’s lending rules remain relatively unchanged. Riskier non-conforming lenders that specialise in lending to credit impaired borrowers have been all but wiped out by the crisis due to an inability to raise funds. The major banks and other non-bank lenders have tightened their credit policies to stop high risk no deposit loans & low doc home loans.

There is an increasing reliance on borrowers ability to demonstrate savings as it is well known in Australia that borrowers that can save their own deposit or down payment are far more likely to make their loan payments on time.

Borrowers with no savings and no deposit are still able to borrow 100% with the help of a limited guarantee over their parents home. This is known as a guarantor mortgage and is still available from many Australian lenders.

About the Author

Otto is Mortgage Broker and industry commentator who is well known for providing useful insights into the operations of the Australian mortgage market. His company The Home Loan Experts specialises in lending to Australians that do not meet standard lending guidelines or who do not have a large deposit.

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Filed Under: Australian Mortgages, GFC Tagged With: , , ,

Equity Mortgages

September 20, 2010 By admin Leave a Comment

So you have owned your home for a several years, your repayments have all been on time and now there is enough equity in your home for you to refinance your mortgage and release some money for you to use. Many people take this opportunity to invest, renovate, consolidate debts or take a holiday! What can you do with your equity?

Of course getting approval for a home loan isn’t as easy as it used to be. There are a few factors you need to consider which can have an effect on the outcome of your loan application.

1. What is your LVR?

The Loan to Value Ratio, or LVR, is the percentage of the property value that you are borrowing. So if your home is worth $500,000 and you are borrowing $400,000 then you have a LVR of 80%. The lower the LVR the lower the risk to your mortgage lender.

As a general rule loans for less than 80% LVR are considered safe, whereas loans for more than 80% are risky, the lender may actually lose money in the even that you can’t pay the loan. For this reason the approval guidelines are much tougher for high LVR equity mortgages.

2. The loan purpose is critical!

Did you know that the purpose of the loan can make all the difference to if you get approved or not? Banks know from experience that people borrowing for reasons such as debt consolidation, repaying tax debt or for consumer spending are a higher risk than those that are borrowing to fund renovations, invest or to pay for their children’s education.

As a result they will give your loan a lower credit score if it isn’t for one of the purposes that they deem to be a low risk. If you are borrowing over 80% of the property value then the lender may have “cash out” restrictions. This means that they reduce the amount of funds that can be released directly to you. If you provide evidence of what you are using the funds for by providing renovation quotes, a statement of advice from a financial planner or a contract to buy an investment property then they will waive these restrictions.

3. Choosing the right lender

Every mortgage lender has their own view of equity loans. Some see them as a high risk, others see them as an opportunity to get additional market share! So again some will be conservative when assessing your loan. If you choose the right lender to apply with from the beginning then you’ll not just get a great rate but also have a higher chance of getting approval.

The best way to do this is to use a mortgage broker. They deal with equity mortgages on a daily basis, and can quickly work out the best lender to apply with to get your loan approved.

4. Get expert advice

Choosing the right mortgage broker can be difficult. Try Googling ” equity mortgage ” to find a broker in your area that specialises in releasing equity. This area of borrowing is quite tricky, so be sure to ask your broker about their experience with equity loans and why they are recommending the lender that they choose for you.

About the Author

Otto is a Mortgage Broker that has specialized in equity home loans for over 5 years. His company the Home Loan Experts is now one of the top providers of equity mortgages in Australia.

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Filed Under: Australian Mortgages, Mortgage Reduction Tagged With: , ,
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