100% Home Loan

Hi Sk2. Congratulations on making the move to buy. There are a few issues with 100% homeloans, which I will touch on for you. Firstly, you will find Wizard and St.George are the two ‘main’ mainstream players in this area. I should also warn you to make sure you check comparison rates. For example, the Wizard Clear value loan, which is an excellent product, has a interest rate of 7.39%, and comparison of 7.42% on a 250k loan for 25 years. IMB, quote 7.37 ….the same loan has a comparison rate of over 8 % !!! (8.02) Also remember the monthly fees also – the Wizard loan has none.
All that being said, the main areas to be concerned with are as follows.
1) You will pay significantly higher Lenders Mortgage Insurance than for a 95% loan. Even tossing in an extra grand or two into the deal will reduce this.
2) Some areas (postcodes) have lending limits for 100% loans. Ie you may find the LMI company will lend $200,000 for a 100% loan in a given area, but $300,000 for a 95% loan. This can put a stick in the spokes.
3) If there are not many comparable property sales in your area, the mortgage insurance companies can decline your application, as they don’t want to take the risk as they believe that the true value of the property cannot be confirmed, and of course don’t want to risk losing money.

That’s about it. I think you would be hard pressed to find a loan with much better value, and as you are no doubt aware, it can be ‘split’ into two parts, such as variable and fixed interest at no cost either.
And as a general tip irrelevant to the LVR of your loan – get a preapproval BEFORE you go looking and making offers. It can save heaps of heartache.
All the best with your new home plans![strum]

Dear SK2,

My response to whether you should go and see a mortgage broker, or better still get them to come and see you would be whats the harm?

I appreciate that I am a mortgage broker so I am likely to say that, but most of us don’t charge you for our services, and get paid by the lender when and if you decide to pursue a loan through them.

The benefit is that we do the research for you. I know for example of 10 lenders that provide 100% loans, so though the rate is obviously important there might be other factors that you’d like considered as well. The ability to make extra repayments, offset accounts, etc etc.

If you do decide to go through a broker I’ve included some questions you might want to ask to determine whether they are the right broker for you:

1. Can the broker clearly explain in writing:
• The process the loan application will take from enquiry to settlement?
• Full disclosure of commissions received and how they are calculated?
(Not merely the fact that they are paid by the lender but the amount and how it is calculated).
• Their Complaints procedure and Privacy policy?
2. Can the broker demonstrate professional standards?
• Have they completed an accredited training course?
• Are they familiar with and comply with the Uniform Consumer Credit Code?
• Do they carry adequate professional indemnity insurance?
• Are they a member of the Mortgage Industry Association of Australia (MIAA) and comply with the
Code of Practice?
3. Is the broker working in your best interest? If so, can they demonstrate:
• They receive the same amount of commission regardless of lender or product chosen?
• They do not have branded products of their own?
• If they have their own “branded” products – clear reasons for any recommendation of those products?
• They disclose any alternative forms of remuneration?
• They disclose any referral fee they pay for being introduced to you as a potential client?
• They have a Customer Charter that clearly outlines their service levels, remuneration and dispute resolution policy?
4. Do they have at least 15 lenders on their panel?
• Can they offer a wide range of lenders – banks, non-banks, building societies, credit unions etc, to choose from?
5. Can they offer a choice of home loan?
• Will you receive a written comparison of home loan options including the upfront and ongoing fees?
• Are you satisfied that there is no conflict of interest? In other words, the lender and product are the right loan for you and not the broker.
6. Will an estimate be given of the recommended lender’s loan processing time?
• Will any history of lender delays be discussed with you?
7. Do you consider you have been encouraged to borrow within your means?
8. Will the broker charge you for his/her service?
• Outside of the normal lender application fees, there will be no fees requested by the broker to cover their individual costs.

If you have any other questions feel free to give me a call.

Best wishes and good luck
Regards

Neil and Kate Gorman
Mortgage Broker
Mortgage Choice – there’s only one choice
tel: 0430 500 848
e-mail: [email protected]

Great reply Neil and Kate.

One further point on your initial post SK.

Many people think that 100% loans mean that they do no need any deposit. That is wrong. You still have to come up with the closing costs (about 5-6%) which include stamp duty on purchase and loan, loan application fee, building inspection, building valuation (normally paid for by bank unless you get one done beforehand), registration of title, mortgage registration fee, title search, adjustment of rates and land broker.

I know a mate of mine that stumbled over this hurdle and lost a few thousand dollars in the process.

The other important consideration is, that if the value of the property declines (and it DOES happen), you suddently have a negative equity. I heard of a property that was bought for about $420,000 a couple years ago in Sydney and was sold as morgagee sale for $260,000. Owing the bank $160,000 with nothing to show for does not appeal to me.

So while it is good to become proactive, caution is also important. Especially as the market is not booming any more.

Good Luck