LMI fee for 95% loan too costly?

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alexjong
Posts: 60
Joined: Wed Jun 17, 2009 5:21 pm

LMI fee for 95% loan too costly?

Post by alexjong »

I'm looking to purchase an investment property out in Victoria for the purpose of dividing it and selling part of it again. The property is worth about $840,000 and I hope to get a 95% home loan.

I haven’t gone through with the loan application because I’m worried about the LMI fees – I understand that the higher the loan amount, the higher the LMI fee is?

Do you guys think that this loan would be a good idea?

-Alex

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Otto Dargan
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Re: LMI fee for 95% loan too costly?

Post by Otto Dargan »

Hi Alex,

Firstly, if the property is worth $840,000 then a 95% LVR home loan would mean that you are borrowing $798,000.

Regarding your question, yes, bigger loans can mean larger LMI fees – this is because the lenders feel that they are taking a bigger risk and so will require more insurance against your loan.

The good news is that all lenders are not the same and their fees can vary as well as the other services they offer, for e.g. one lender will allow you to capitalise your LMI premium.

Feel free to check our LMI calculator to calculate the cheapest LMI that can be available to you. Depending on the LMI fee, you may be able to see for yourself if the loan is affordable or not.

Please post again if you need more help.

Cheers,
Otto
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alexjong
Posts: 60
Joined: Wed Jun 17, 2009 5:21 pm

Re: LMI fee for 95% loan too costly?

Post by alexjong »

Hey I tried the calculator and the lowest fee is $31,521.

I got a bit confused about the headings “Final loan” and “Funds available” – I think this is related to LMI capitalisation?

-Alex

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Otto Dargan
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Re: LMI fee for 95% loan too costly?

Post by Otto Dargan »

Alex,

LMI fee capitalisation means that your LMI fee will be part of your loan.

This means that the total amount you are borrowing is the “Final amount” and the amount of money you will get on hand is the “Funds available” – here the LMI fee is automatically deducted from the "Final amount".

This is helpful because you would require a smaller deposit, for example in this case the $31,521 may be capitalised as part of your loan by some lenders.

Hope this clears things up,
Otto
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alexjong
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Joined: Wed Jun 17, 2009 5:21 pm

Re: LMI fee for 95% loan too costly?

Post by alexjong »

Great! So you think I should go ahead with this?

Please let me know quick, because it’s Wednesday already and I don’t want to have to wait forever just because the banks are closed on weekends. I understand that mortgage processing takes a while too – one time a friend was applying for a low doc loan to buy a house and the bank people just took forever!

-Alex

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Otto Dargan
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Re: LMI fee for 95% loan too costly?

Post by Otto Dargan »

Hey Alex, before you head on down to the bank, I hope you’ve taken a good look at the requirements for a 95% home loan.

I’ve linked this in my first reply, let me tell you about the the basics:
  • Genuine savings – it is absolutely essential that you have at least 5% of the property price saved up as genuine savings
  • Credit history – banks and other lenders will want you to have a clean credit history with no history of defaults, missed payments, etc.
  • Employment history – you should be working in the same job for at least 6 to 12 months
  • Income and assets – lenders prefer applicants who have a good income which implies that you are in a good position to make repayments; the value of your assets are also important because they can tell the bank about your financial situation
  • Location / type of property - some lenders are particular about where the property is situated or the type of property you are buying
95% loans are more risky for lenders than 90% or 80% home loans so they have stricter lending policies for these applications - think about these options if you cannot fulfil these conditions.

If you’re sure that you can meet these criteria, then all the best with your purchase. If you're not sure, give us a call on 1300 889 743 or send us a free online enquiry and we can help process your loan.

FYI, we don't charge broking fees for loans above $300,000 :D

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
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alexjong
Posts: 60
Joined: Wed Jun 17, 2009 5:21 pm

Re: LMI fee for 95% loan too costly?

Post by alexjong »

Ah! I was in a bit of a hurry leaving the office so I missed these the first time. Thank you for the crash course!

I am pretty confident about my finances and my credit history, etc. but thanks anyway.

-Alex

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Garry
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Re: LMI fee for 95% loan too costly?

Post by Garry »

Hi Otto, could I get some free advice as well? :P

I teach Physics at a high school and my wife teaches Art - we have saved up a tidy little amount and now want to buy a unit for renting out.

We would prefer to save up our deposit for other purposes (maybe a holiday here and there) and take a larger loan. What do you suggest for us?

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Otto Dargan
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Re: LMI fee for 95% loan too costly?

Post by Otto Dargan »

It would be my pleasure to help you, Garry.

Since you are an investor I suggest that you maximize your loan amount so that you can keep most of your savings (vacations are very important! :lol: ). So if you can meet the requirements for a 95% home loan, then go ahead. If not, you can always try for a applying for a 85% home loan or a 90% home loan.

And if your family members are generous, you can always ask your parents for a guarantor loan - if they agree, you can get 100% of the property value as a loan and at the same time avoid paying LMI fees. Lenders will also not ask you for a proof of deposit here.
Otto Dargan
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dougie72
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Joined: Sun Mar 24, 2013 10:57 am

Re: LMI fee for 95% loan too costly?

Post by dougie72 »

Otto Dargan wrote:...you can get 100% of the property value as a loan and at the same time avoid paying LMI fees...
Oh wow you don't have to pay the LMI fees? Sounds too good to be true :shock:

dougie72
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Re: LMI fee for 95% loan too costly?

Post by dougie72 »

Whoops, where are my manners... I would like some free advice as well, thanks :lol:

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Otto Dargan
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Re: LMI fee for 95% loan too costly?

Post by Otto Dargan »

No worries Dougie; to answer your question, guarantor loans help you AVOID paying LMI fees because of the structure of the guarantee.

As you must know, loans with LVR's of above 80% require you to pay LMI fees - the beauty of the guarantor loan is that once your family member puts up his / her property as a security, the value of the property gets added which helps bring the LVR down to less than 80%. This means that you can avoid paying the LMI fee!

Guarantors can also take out a limited guarantee and reduce their exposure to your mortgage and limit it such that LVR is still less than 80%.

If that's not clear enough, you can work it out on our guarantor loan calculator.

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
Home Loan Experts

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