Thursday, April 23 2015
With the property market on the move getting to a 20% deposit is a major challenge. Particularly when you consider Brisbane’s median price is heading towards $500,000.
By the time you get to your $100,000 the market could have moved on another $50,000 or $100,000. So you are forever playing catch up.
Buyers also forget the other costs like stamp duty, conveyancing, bank fees etc which can add up to around 5 - 7% of the property’s value. So for your $500,000 property you may need more like $125,000. Again as prices rise these cost will push upwards.
Even for first home buyers once the price gets above $500,000 stamp duty kicks in.
People think of mortgage insurance as a dirty word but the reality is it is just a means of getting into the market sooner. In some circumstances it is possible to purchase a property with just a 5% deposit plus costs. In other words $25,000 plus other costs.
What is mortgage insurance?
Mortgage insurance protects the bank or lender, should a home loan go into default, guaranteeing that the lender will get its money back if the property needs to be sold and there is a shortfall in repaying the loan.
While a 20% deposit generally provides a good buffer against any drops in property value over the life of a loan, mortgage insurance can also provide the same protection, meaning borrowers can purchase property with a smaller deposit.
How is it paid?
The insurance premium is a one-off payment, and in many cases it can be added to your loan and paid off progressively over the life of your loan.
The premium payable is determined by both the loan amount and the loan to valuation ratio. The higher the loan amount and the higher the loan to valuation ratio the higher the premium.
What’s in it for you?
In a rising market it allows buyers to get into the market sooner. In the time it takes to save a higher deposit amount, property prices may well have surged by more than cost of the insurance so, for some properties and purchasers, it can make good financial sense to purchase earlier even with the added cost of mortgage insurance.
To find out if mortgage insurance would be beneficial to you contact us today.