Archive for September, 2010

This week I saw a young couple who are upgrading to a larger property. They had been to their current lender to discuss their home loan and also telephoned a major bank call centre with whom they had a transaction account.  Both of these had said they couldn’t help.  I looked carefully at their positon and realised that they had been given incorrect information over the phone and they would certainly fit within the lender’s policy.

This situation showed the value in using a good mortgage broker and here are my top three reasons:

1. We do all the leg work.
2. We have a wide range of home loans and lenders to choose from not just one.
3. We are the experts over a range of mortgage products.

If you don’t have a 20% deposit, Lenders Mortgage Insurance (LMI) will let you get into the property market with as little as a 5% deposit (depending on lender criteria around how much you can borrow).  If you buy a property for $300,000 with $285,000 of the Bank’s money, the Bank is investing in you, the client;  you will take all the benefit of a capital gain and so for that you need to pay a fee.

First time home buyers in Newcastle and Lake Macquarie typically have $20,000 in genuine savings.  With LMI they can look to purchase a property up to $400,000.  If you take LMI out of the picture, borrowers with a $20,000 deposit would only be able to purchase a property with a value of $100,000. 

The major benefit of LMI is that it lets you get into the property market now rather than waiting until you have saved a 20% deposit and house prices have increased $50,000. 

Three Things To Remember about Lenders Mortgage Insurance:

1. LMI is the insurance that covers the lender not the borrower agains the borrower defaulting with his loan repayments.
2. LMI is a one off premium at the time of taking out your home loan.
3. Most lenders will let you put the cost of the premium into your home loan

August issue of industry magazine “Australian Broker” presents industry experts agreeing that “Low-Doc” Lending is now effectively gone or will be gone with the National Consumber Credit Protection (NCCP) laws coming into effect as from 1st January 2011.  This legislation requires brokers and lenders to obtain adequate information and take “reasonable steps” to verify a borrower’s situation at the time of application, requiring additional documentation.  Therefore, a borrower who self certifies his income solely will no longer be accepted.

The irresonsible practices in the US market which preceeded the global financial crises has seen low doc lending in Australia being tarred with the same brush despite our lenders having more stringent processes.  It all comes down to whether Lenders and their repesentatives having done their due diligence as to the loan being “suitable”.

Low doc products remain currently.  However,  1st January 2011 will tell a different story.