How much of an impact does lo doc and mortgage insurance have on a loan?
I’m self employed and have about 10% deposit for the sort of purchase I’m looking at, and I’m wondering whether I’d be better off just accepting the increased rate for a lo doc loan and the mortgage insurance fee, or wait (a few years) until I have the 20% deposit and a longer paper trail.
But the example values I’m seeing for the lo doc interest rate increase varies between 0% and 2.5%, and I haven’t been able to find any specifics about mortgage insurance fees.
How are these things calculated? Or does each lender have their own ideas?
Thanks,
Rowan.Mortgage insurance has a huge impact on low doc loans as virtually all mainstream Low Doc loans are mortgage insured. With some the lenders charge the clients the fee, while with others they incorporate the fee into their rate and/or exit fees.
This means that you will have to pass the LMI criteria as well as the lenders criteria. Postcodes may be restricted, total loan amounts, overall exposure levels, previous disclosed incomes etc.
There is 2 main LMI companies and 2 or 3 other smaller ones. So often changing lenders will not help you, as they will be using the same LMI company.
There are a small number of loans that do not have LMI at all for Low Docs. eg. ANZ, Adelaide, ING, and some others.
Terryw
Discover Home Loans
Parramatta
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So there’s no standard rate increase for a Low Doc loan compared to a standard one, and no standard LMI fee for a loan of a given size?
They don’t make it easy to calculate if you can afford a big loan. And I keep seeing extra fees pop up that I hadn’t considered.
Doesn’t look like I’m there yet though, and with the interest rate likely to go up again soon so I think I’ll keep building the deposit for a while longer.
Thanks.
Rowan.
LMI will differ between each mortgage insurer and also differ for each lender. But overall the differences are small.
Without knowing exactly what you are buying, I would guess that the “differences” we are only talking about a one to a few thousand dollars. Smaller valued properties would even be less than that.
You mention Self Employed and Low Doc, but if you can verify your income, then you can access full doc rates.
Also without knowing if you are a first home owner -assuming not, then you assume costs of 5% for any purchase. Therefore if you have a 10% deposit and 5% is used up for costs, you only have a 5% deposit.
You would need to borrow 95% of the purchase price. You can do that is you are Full doc or Low Doc, but the low doc rates are a alot higher.
Regards
JohnInspired Finance
(02) 9944 7776I’m looking at a one or two bedroom apartment in Prahran or South Yarra for around $300k.
So the up front fees I’m looking at are:
$60k – deposit
(or)
$30k – deposit
$2k – mortgage insurance$15k – stamp duty + legal fees
$3k – furniture + laundry equipment
$400 – loan manager fees
$100 – building inspectionFees in my favour:
$10k – first home owner grant ($3k? $7k?)
—
Using the Wizard rates (http://www.wizard.com.au/homeloans/firsthome.aspx) as examples, and adding 1.5% to account for variation over the length of the loan, ongoing fees for a 25 year loan would be:
Full doc (6.21% + 1.5% = 7.71%):
$2030/mo – $270k loan
$1800/mo – $240k loanOr low doc (7.14% + 1.5% = 8.64%):
$2200/mo – $270k loan, 7.14%+1.5%
$1960/mo – $240k loan, 7.14%+1.5%$1.5k-$2k/yr – body corporate + sinking fund
$110+usage/yr – water
$550/yr – council rates
$?/yr – home insurance
$200/yr – contents insurance
$200/yr – general maintanenceOngoing fees in my favour:
$600-$1680/yr – car park leasing
—
They’re all just ballpark values, but that’s basically what I’ve worked out to date.
I notice that:
. The minimum repayments drop around $100/mo for a 30yr loan rather than a 25yr one.
. Low doc adds about 1% to the interest rate, which amounts to $150/mo on the repayment fee (pretty substantial).Looks like I’ll be pushing for a full doc loan.
The cost of the mortgage insurance doesn’t look high compared to the rent I’d be paying while I saved my deposit up to 20%, especially if the price of a $300k property increases in that time (which I assume it would).
I’m hearing on the news talk of the base interest rate going up at least once more in the immediate future. Last time it went up 0.25%, so even if it went up twice I assume that wouldn’t mean more than another $80/mo or so on repayments. Not the end of the world.
I wonder how much the interest rate would need to go up to see prices actually drop in the Prahran/South Yarra area. Probably a lot.
—
Mostly just thinking out loud here, but if I’ve made any errors I’d appreciate a headsup.
Cheers,
Rowan.Rowan
It all depends on which lender you use. If you did a low doc wit st G for eg, you could be paying normal rates – with only LMI xtra.
If you go with Macquarie, you would be paying around 7.48% with no LMi payable.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
If you are looking for Low Doc 90%
Criteria is clean credit, self employed, ABN for two years, and must have last 4 BAS done.
If you have above, then should be able to do 90% at 7.5% plus one off LMI fee of 1.5%
If you don’t have BAS, can do Low Doc 85% at 8.1% plus LMI
regards
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