Lenders Mortgage Insurance, or LMI, is an insurance fee charged by lenders if the loan is greater than 80% of the property value. This fee is put in place to protect lenders and is paid by the borrower. If the borrower is unable to make their agreed repayments, the lender could repossess their property and sell it at market value.
LMI is charged as a one-off lump-sum, however in most cases it can be added to the loan amount and paid off throughout the duration of the loan.
Rising house prices can make it difficult for the younger generations to enter the property market. A popular way for parents to support their children in purchasing a home is through a guarantor loan. There are several key benefits associated with this, however it is important for parents to understand how it can affect their financial position.
If a first-home buyer can afford the monthly repayments of a mortgage, but does not have the required deposit, they can use the equity in their parent’s residence to secure the loan. In this situation, the parent is ‘guaranteeing the loan’. The key benefit for the borrower is that they avoid paying Lenders Mortgage Insurance, which is charged if they do not have a deposit of at least 20% of the property value.
There are some drawbacks that the guarantors should be aware of. Parents may be liable for the loan if their child is unable to make repayments. Furthermore, if the parents wish to take a loan for a different purpose, the security used to guarantee their child’s loan will not be available to secure additional debt.
Competitiveness among lenders forces institutions to come up with innovative ways of attracting new clients. Offset accounts can be extremely beneficial to borrowers depending on their circumstances.
Offset accounts are a standalone savings account that is linked to a mortgage, allowing borrowers to use their savings to offset the interest on the loan. The funds deposited in these accounts are freely available for use whenever necessary, similarly to a savings account.
If you have a mortgage of $500,000 at an interest rate of 4%, you would be charged $20,000 in interest per year. However, if you had $50,000 of savings in your offset account, you would only be charged on interest $450,000, meaning you would be paying $18,000 in interest per year.
As the name suggests, a mortgage with a redraw facility allows you to ‘redraw’ money from what you’ve already paid towards the mortgage. It operates similarly to an offset account; the key difference is that the funds in a redraw facility are harder to access.
If your current loan is no longer right for you, current interest rates and a competitive lending landscape mean that there’s never been a better time to refinance your home loan. Typically, we suggest reviewing your home loan every two years, as there will likely be a better product available to you.
It’s worth being aware of the rate you’re currently paying on your mortgage as there’s a good chance that there’s a better rate available. Keeping in touch with a mortgage broker, or even simply observing advertisements on TV can give you an idea of the current market rates out there.
Accessing equity in your property for any purpose is quite a simple process. Provided you have the means to service the added loan amount, a mortgage broker will be able to release any amount of equity you wish.
A variable home loan means that the rate you pay is subject to change concurrently to market conditions. A fixed interest rate offers you the protection of locking in a rate for a certain period, meaning that you are protected against any unfavourable movements.
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