Lenders who pay mortgage insurance for you

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The The Homestar Finance option is its new exemption offer from Star Choice LMI available for loans up to 90 percent LVR.

However, these deals still need careful thought, said Tom Godfrey of Mozo: “If you are a first-time buyer, taking a cautious approach at this time could be critical.

“While you may be tempted to use an LMI offer to move up the housing ladder, your best defense against a real estate market correction might be a decent-sized deposit,” he says.

Often the problem, as with any banking offer of this type, is that your financial advantage is quickly eroded by a higher interest rate.

“If you are considering taking out an LMI offering, be sure to compare the rates on these loans, as some have higher interest rates. , said Godfrey.

For this reason, if you are refinancing, it is often prudent not to do so unless you have accumulated 20% of the equity in your home. Fortunately, soaring house prices make this more likely.

Last week, the mortgage regulator, the Australian Prudential Regulation Authority (APRA), also made it more difficult for first-time homebuyers to get a large mortgage. It has reduced the maximum amount that can be borrowed by passing the “stress test” of affordability of bank interest rates 2.5 percentage points above the going interest rate. at 3%.

The strengthened “stress test” will begin in November and comes in response to data from APRA showing that 22% of all new loans have a debt-to-borrower income ratio above six.

APRA estimates that this move will reduce a household’s borrowing power by about 5%. So if you could borrow $ 500,000 before, you will soon be able to borrow only $ 475,000.

If you’re a first-time buyer, there are other ways to avoid LMI. Mainly – if you can’t save a 20 percent deposit because house prices are rising too quickly – ask your parents to vouch for the difference between the amount you saved and the 80 percent LVR.

What is important to understand is that they are putting their house as collateral, at this value, so it is not something to be taken lightly.

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For first-time buyers whose income is limited to $ 125,000 for singles and $ 200,000 for couples, it is possible to buy a home with only a 5% down payment without paying LMI. This is a 10,000 homes per year initiative under the federal government’s first home loan deposit program that guarantees the 15 percent that you complete up to the 20 percent required to avoid LMI.

However, that does mean you’ll have a 95% LVR loan – and your borrowing power is still capped by the new 3% stress test.

Regardless of the official affordability test, it’s best to apply your own: never borrow an amount that means the repayments would consume more than a third of your pre-tax income. That’s the definition of mortgage stress, even before interest rates rise – and they will.

  • The advice given in this article is general in nature and is not intended to influence readers’ decisions regarding investment or financial products. They should always seek their own professional advice that takes their personal circumstances into account before making any financial decisions.

Nicole Pedersen-McKinnon is the author of How to get mortgage free like me. Follow Nicole on Facebook, Twitter Where Instagram.



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