Deposit
The size of your home loan deposit affects your loan’s interest rate %. The bigger your deposit, the bigger the discounted interest rate you can get, and the more the choices of lenders available.
Generally, if your deposit is less than 20% of the property’s value, you would need to pay LMI (Lenders’ Mortgage Insurance) – see below. LMI amount can be between 1-5% depending on the size of your deposit, borrowing location and your lender.
Contact us anytime for a FREE LMI estimate:
What is LVR (Loan To Valuation Ratio)
Lenders use LVR calculation to assess how risky you are as a borrower.
LVR = loan amount divided by/value of property.
For example, if you borrow $900,000, and the property is $1,000,000 then your LVR is 90%
The higher the LVR %:
Means the more your borrowing of the property value is.
Means the more risk to the lender.
Means a higher interest rate % that they need to charge you to cover their risk.
The FHOG (First Home Owner Grant) can be counted as a part of your deposit, therefore it can be included in the calculations of your LVR (Loan to Value Ratio).
LMI (Lenders’ Mortgage Insurance)
If you borrow more than 80% of your property’s value (meaning more than 80% LVR), generally it is a condition of the loan that you’ll need to pay LMI premium, a one-off payment at the time of Loan Settlement (when the funds are transferred for full payment of the property).
Note that LMI protects not you the borrower, instead LMI protects the lender against any losses that may occur if you default on your loan. You don’t need to organise LMI, your lender arranges it for you during your loan approval process.
The bigger your deposit, the lower the LMI.
Avoid Paying LMI
Generally you don’t need to pay LMI if you have 20% deposit.
- You won’t pay any LMI and might not even need a deposit if your parents act as security guarantors and guarantee your loan using their property as security.
- Legal, Medical and Accounting professionals may be eligible to have their LMI waived.
- If you qualify under the FHBG (First Home Guarantee), you may buy a home with as little as 5% deposit without having to pay any LMI (part of your home loan from a Participating Lender will be guaranteed by Housing Australia). Please check for current Government Scheme at: https://www.housingaustralia.gov.au/support-buy-home/first-home-guarantee
Loan Fees charged vary across lenders
There are a range of costs from taking out a loan that may be payable to your chosen lender. Some fees are buried within their terms and conditions. That’s why it is important to have assistance in breaking down the fees applicable in a loan product’s PDS (Product Disclosure Statement).
Comparison rate for the loans can be used as a quick general indicator of whether a loan comes with significant fees or not – If the interest rate is low yet the comparison rate is high, the loan probably comes with significant loan fees.
The loan fees that may be applicable include Upfront Fees, Ongoing Fees, Exit & Discharge Fees. Some fees can often be waived as not payable.
Upfront Fees (payable at the start of loan)
Some lenders may waive this fee to attract borrowers and include:
- Application Fee (also known as Establishment/Start-up/Set-up fee)
A one-time fee charged at the start of loan for processing and documentation of your loan. The big banks have loan products where these fees are waived.
- Property Valuation Fee
A one-time fee usually depending on type of property, location and value. This fee can usually be waived by lenders as well.
- Conveyancing Fee
Can be a fixed fee or sliding fee based on property price, for the lender’s solicitor or conveyancer to transfer ownership of legal title of land from the owner to you, the buyer.
The major banks generally do not charge this fee, and some lenders can waive this fee.
- Legal Fee
This fee is for paying the lender’s legal professional fees, can be waived by some lenders.
- Mortgage Registration Fee
Usually paid on your behalf by your lender using the funds you provide at Settlement, to the applicable state and territory government to register the physical property as security on your loan.
- Search Processing Fee
This is for the lender to conduct a Title search and any other searches applicable to your application.
Ongoing Fees (over the term of your loan)
- Monthly Service Fee
May be charged monthly to cover the service and administration of your loan.
- Annual Fee
Is usually subjected to those who’ve taken out a Package Home Loan deal for reduced interest rates or other promotional discounts. Can often be waived, especially during first year.
- Redraw Fee
This fee in a home loan with Redraw feature charged per withdrawal of extra repayments made, may also be waived by lenders. Some lenders don’t charge for the withdrawal at all.
- Late Payment Fee
May be charged if you don’t pay your monthly repayment by the due date.
- Portability Fee
Applies in a home loan which opted for this portability feature, whereby you can keep the same loan when you sell your house and move into another (taking the loan with you).
Exit & Discharge Fees (when you close your loan)
- Exit Fee
Banned in July 2011 on new home loans, but older loans may still have Exit fees applicable, so beware when trying to refinance.
- Discharge Fee (also known as Termination/Settlement Fee)
For the cost of completion of the lender’s work when you paid your loan in full.
- Early Exit Fee (also known as Early Termination/Early Discharge Fee)
For the recovery of a lender’s loss caused by the early exit, which needs to be calculated by the lender and may be a significant sum.
- Fixed Rate Break Fee
This fee includes above listed Discharge Fee and Early Exit Fee, which are charged when you break your Fixed rate loan contract.