Category: Home Loans
Axton Finance wins at Connective’s Level Up Conference
We are very proud to announce that Axton Finance won Connective’s Brokerage of the Year <5 Staff VIC. Thank you to our great team and clients who supported us over the past 12 months.  Contact us here or ring on 03 9939 7576 for all your mortgage and finance requirements.
Reduce your mortgage insurance premium
There is no denying it – mortgage insurance or lenders mortgage insurance (LMI) kind of sucks.
This short article is about ways in which you can avoid mortgage insurance or at very least significantly reduce costs but first a few basic facts:
– It protects the bank not you
– It is a once off premium
– You have to pay it if your loan amount is greater than 80% of the property’s value
– The premium can often be added to the loan meaning you do not need to increase your cash deposit
– Getting a refund if your refinance these days is all but unheard of
– It can be expensive but you knew that right!
In the long term its often not as expensive as you may first think – especially if you have a strategy of paying off the loan sooner than the approved loan term (which everyone should try and aim for!). Paying one or two percent extra to buy a property sooner with a smaller deposit can often be recouped by paying today’s prices rather than delaying your purchase by a year or more and paying tomorrows prices which could be much more than the cost of the initial premium.
So how do you avoid or at least minimise paying lenders mortgage insurance?
Option One – Reduce your loan to valuation ratio
For almost all circumstances mortgage insurance kicks in once you borrow in excess of 80% of the value of your property. By increasing your deposit or reducing your purchase price you may be able to minimise the cost of the premium. A sure fire way to save money is to keep your lending under 90% of the value of the property – the moment you go above this threshold the cost of the mortgage insurance sky rockets (it can almost double in many instances). Call us to get a quote or tailored explanation of how it might apply based on your scenario.
Option Two – Use A Family Pledge
Your can eliminate the mortgage insurance cost entirely with the help from a family member who already owns property. This increasingly popular facility that we use is known as limited equity guarantee or a family pledge structure. Check out a detailed explanation of how this simple structure works here on our blog.
Option Three – Do you work in one of these industries?
Some of the banks offer packages that enable certain borrowers to lend up to 90% without paying any mortgage insurance. This is generally available for professionals in speciality industries such as lawyers, doctors, physios, dentists, sports stars and entertainers.
I hope this helps explain how mortgage insurance works in a little more detail. Please contact us here for an obligation free chat or ring 1300 706 540 to discuss your individual mortgage needs.
Get your home sooner when a family member guarantees part of your home loan.
Do your parents want to help you buy a home or invest in property?
Many lenders these days offer limited equity guarantee or family pledge loan structures to help you purchase a home without the absolute necessity of a cash deposit. Furthermore a family pledge structure will usually eliminate the need to pay expensive once off lenders mortgage insurance (LMI) costs.
How family pledge works?
Your family members (usually parents) can use their own home’s equity to provide additional security for a portion of your loan amount. This solution reduces your loan to value ratio and can also save you a significant amount of money by reducing or even avoiding the need to pay Lender’s Mortgage Insurance. So you get into your home faster, with help from your family.
With most lenders the guarantee can be limited to a specific amount (so not guaranteeing your full loan) which helps provide certainty and allows the property to be released much earlier than guarantees which cover 100% of the loan amount.
Benefits
- By increasing your security through a guarantee from your family, you may be able to reduce or avoid paying Lender’s Mortgage Insurance. Lender’s Mortgage Insurance is generally payable on loans that exceed 80% of the value of the property.
- A Family Pledge can help you maximise the amount you can borrow so you can purchase the property you want. A guarantor can request to limit the guarantee to a specific amount
- Both the borrower or guarantor can ask us to release the guarantee at any time once standard Loan to Value ratio (LVR) requirements are achieved (usually 80%)
- Interest rates and packages are the same for almost all Family Pledge loans. Standard guarantee and legal fees from most banks will normally apply.
- The guarantor can be a new or existing customer of the bank we recommend. The guarantor can even retain their home loan with their current Home Loan provider providing sufficient equity exists.
Take this example
Say you were planning to purchase a $500,000 property with a $25,000 deposit (ignoring closing costs for simplicity you would have a Loan to Valuation LVR of 95%), this would mean Lenders Mortgage Insurance (LMI) would most certainly be payable.
If your parents had a residential property and agreed to provide a family pledge guarantee of $75,000 as an additional security, your LVR would be reduced to 80% (this guarantee is not a cash loan but the lender does register their interest by way of a mortgage for the guarantee amount only against the guarantors property).
This would result in the LMI premium requirement being waived, up to a $17,760 saving for you (eg. 3.4% of the required 95% loan amount plus Victorian stamp duty of 10% using indicative QBE LMI rates as of Jan 2015)!
While this example uses a deposit some lenders do not require this and can approve a loan to valuation ratio up to 100% PLUS costs (stamp duty etc). This may result in an approval of up to 106% if required – we of course recommend a deposit is always preferable though.
Are you eligible for Family Pledge guarantee?
- You can use a Family Pledge to buy a home or invest in residential property, and you don’t have to be a first home buyer to be eligible!
- Family members who can provide the Family Pledge guarantee include parents, grandparents, siblings, sons and daughters.
- Family Pledge is generally not available for existing loans or refinances. Increases to loans with Family Pledge are allowed but the Family Pledge amount may not be increased usually.
- Individual applicants are restricted to a maximum of one parental guarantee/family pledge borrowing.
- As a rule of thumb no single guarantee is to represent more than 50% of the guarantor’s security. Some banks do not allow guarantees to be against a parents owner occupied home but only investments while other do not.
- Guarantors are usually required to secure independent financial and legal advice as a condition of loan approval.
- Family pledge loans can guarantee security only and NOT income (you must be able to earn sufficient income to service the entire loan based on your own resources).
Call us today to discuss your situation on 1300 706 540 or email.