Money

Don't forget mortgage insurance

Noel Whittaker
Noel Whittaker

THE ongoing volatility in interest rates has generated the predictable hype about  borrowers taking matters into their own hands and switching lenders.

Unfortunately in most cases changing lenders is like swapping spouses - an expensive exercise with no guarantee that the outcome will be an improvement.

The main stumbling block is mortgage insurance, which is compulsory if the loan to valuation ratio (LVR) is more than 80%.

Think about a couple who are considering buying their first home, and who wish to borrow $570,000.  They have been attracted by all the huge newspaper advertisements and decide to go to Lender A because that institution is offering the cheapest rate. 

They have only 5% deposit so the LVR is 95%, -  they have not even given a thought to what the mortgage insurance premium may be.

The lender they choose charges them a premium of 3.9% or $22,230 and they happily sign up. They have no idea that another lender, possibly offering a slightly higher interest rate, may offer them the same loan but with a mortgage insurance premium of  2.41% or $13,737 -a massive $8,493 difference.

Of course, the government gets into the act as well and adds a hefty sum for stamp duty which ranges from 5.37% in Queensland to 11.8% in South Australia.

The mortgage insurance and stamp duty is invariably added to the loan which means they will be paying it off over the life of the loan.

After a couple of years our young couple find that their chosen lender has elected to increase interest rates to a level which is higher than most of its competitors.

Even though their house may have increased slightly in value, their LVR is still going to be 95% because the loan has been increased by the mortgage insurance premium and stamp duty.  To their horror, they discover that the new lender will want fresh mortgage insurance - they will be up for another lot of fees which would be at least $13,737, even if they chose the cheapest premium on offer. 

It would be most unlikely that they could obtain any refund of the original mortgage insurance premium.

Noel Whittaker is a co-founder of Whittaker Macnaught Pty Ltd.  His advice is general in nature and readers should seek their own professional advice before making any financial decisions.  His email is noelwhit@gmail.com

Topics:  home loan, mortgage, noel whittaker, opinion




BREAKING: Motorcyclist crashes into tree north of Warwick

One patient has been transported by ambulance to a local medical center with minor injuries.

Motorcycle accident outside of Leyburn.

FOOTAGE: Man arrested over high speed getaway

Alleged stolen car speeds through Warwick

Man arrested over police chase.

Woolworths job cuts: The man behind the 'rebuild'

THE man driving major changes at Woolworth, Brad Banducci, has a huge job ahead of him.

Brad Banducci has big job ahead of him after $1 billion loss

Latest deals and offers

Harry's MasterChef exit makes way for all-Noosa grand final

Harry Foster congratulates MasterChef finalists Elena Duggan and Matt Sinclair after a closely-fought semi-final.

YOUNG Rocky-born cook now working in his dream job in Tasmania.

Kim Kardashian West bemused by selfie 'drama'

Kim didn't expect her naked selfie to cause the stir it did

Alicia Vikander hasn't been home since Oscars

Alicia Vikander "hasn't been home" for nearly nine months.

Tom Hiddleston not worried about relationship attention

Attention doesn't bother 'authentic' Hiddleston

Robbie Williams and Ayda Field to expand family?

Robbie Williams and Ayda Field want more children.

Licking incident bars Ariana from performing at White House

Ariana Grande has been blocked from performing at the White House

You can own this Queensland town for just $1

Yelarbon

Unprecedented auction of town's business centre with no reserve

Work starts on $15M Caloundra apartment building

Turning the first sod at the Aqua View Apartments site in Kings Beach are (from left) husband-and-wife developers Alex Yuan and Stella Sun with construction company Tomkins director Mike Tomkins and Councillor Tim Dwyer.

Developers excited about addition to Kings Beach skyline

72-year-old Coast developer set to start new project

GREEN LIGHT: The Cosmopolitan has been approved for development at Cotton Tree.

Meet the Canberran set to deliver another chapter for Coast suburb

Plans revealed for 1500-lot 'master-planned community'

Precinct will be bounded by Boundary St and Shoesmith Rd

Ecco Ripley sales run sparks prime release

MOVING IN: Sekisui House has announced the release of more residential blocks at Ecco Ripley.

Sekisui House is preparing to unveil more land at Ecco Ripley

The climb is slow but property on the way up

Michael Matusik, director of Matusik Property Insights.Photo Allan Reinikka / The Morning Bulletin

The improvement would be mild when compared to past cycles