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"Homebuyer hack" or "Home loan pitfall"?


A recent article in news.com.au was originally published as 'Homebuyer hack makes thousands' but is it really a hack or a fancy way of getting you to spend more money?

Let's look at it.

As I spoke about here, LMI is Lenders Mortgage Insurance which is payable to the bank if you want to lend more than 80% of the value of the property you'd like to buy. This ratio, called the Loan to Value ratio or LVR is what the banks use to decide before anything else about you, if they consider the purchase an acceptable risk (just in case they need to sell it in a hurry and take a loss).

The article suggests that paying the LMI, although it adds additional costs up front, may be 'absorbed' through capital growth over time. For example the article says that a loan on a $500,000 property with only a 10% deposit would likely attract approx $9500 in LMI and suggests adding this to the loan adding an extra $50 a month in repayments.

Be wary of adding costs to your loan without all the facts as your extra repayments over time can really add up.

If we use the example from the article; there are banks who will lend over 80% but capitalising the LMI on the loan (adding it on top of the loan), the loan most still be under certain percentages. It's certainly an option but there are considerations:

  • higher interest rates

  • market at the time

  • the location and expected growth

  • expected length of time in the higher interest rate

A good relationship with a broker you can trust is vital. You want someone who is monitoring your loan for you and will move you to a lower interest rate once you have seen enough capital growth to be under 80% LVR.

It's certainly an option to consider within parts of the Geelong region at the moment but come and see us before you commit yourself.

Original article is here.

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