Non Genuine Savings Update

4 Aug '13

Non Genuine Savings Update - 95% loan valuation ratio (LVR) still available for non-genuine savings.

Mortgage Insurance Premiums

Mortgage Insurance (LMI) Premiums are similar between insurers but are not the same. When I was trained early in my bank years I was told they were all the same including the premiums. In 2008 I saw one premium vary by $6000. Yes that was a variation not the total premium.

This highlights that a home buyer cannot simply select a lender based upon interest rate of upfront bank costs. It must include mortgage insurance variations if borrowing above 80% of the purchase price or combined valuations. For Lo Doc this figure reduces to 60%, In October 2004, APRA/Reserve Bank made an announcement that stated if a bank lent on a Lo Doc basis they would be required to increase the level of capital held in reserve if they did not mortgage insure above this 60% loan valuation thresehold.

We have the question asked frequently....if we continue to save until we have a 20% deposit we will not have to pay mortgage insurance. The comment is true, however, if the average house in Australia is $400,000 you would need to save $80,000 (including first home owners grant). If you wait and save the $80,000 what will the new purchase price be for that $400,000 house at some time in the future. Saving 20% deposit in our current economic climate and housing prices would seem to be a little difficult for most first home buyers.

As a guide, mortgage insurance premiums when borrowing 95% range broadly between 1.9 to 3.0% for the major banks and funders for loans up to 500K. For loans at 95% near the 1M mark expect to pay near 4%. The massive diference with premium percentages is influenced by loan amount, lender and mortgage insurer used by that lender. Even when you borrow the same loan amount with different lenders, th premium may differ. A qualified and experienced mortgage broker should be able to show you these differences.

Important point to not just select your lender based upon the interest rate. Always have calculated for you upfront the approximate mortgage insurance premium and factor that cost into your borrowing expense. If your mortgage broker or bank cannot do this with ease then consider other options to assist you with your purchase or refinance.