Loan Market continues to see lenders mortgage insurance (LMI) as a continuing source of confusion for first time buyers.
While interest rates will always be an issue for borrowers, it is unanticipated extra expenses such as LMI that often causes potential borrowers to adjust their plans..
Loan Market corporate spokesperson Paul Smith said borrowers with minimal deposits could pay several thousand dollars in LMI charges.
“Generally anyone looking at borrowing more than 80 per cent of the purchase price is required to pay LMI,” he said.
Mr Smith said first home buyers were particularly susceptible to paying higher LMI, as they tended to start with a smaller initial deposit to get into the market.
“Saving for a deposit on your first home is one of the most difficult things facing buyers in today’s market, especially considering high rental costs and living expenses,” he said.
“On a $300,000 mortgage a prospective purchaser borrowing 90 per cent of the property value will be required to pay around $3,500 in mortgage insurance.
“Borrowing up to 95 per cent of the purchase price is even more costly on the LMI front – approximately $6,300 on a $300,000 mortgage and $13,585 on a $500,000 loan.”
Mr Smith advised anyone entering the market to do their homework.
“While it’s obvious to consumers to shop around for competitive interest rates, many people don’t realise the importance in considering the lender’s LMI charges,” he said.
“Mortgage insurance costs do vary between banks and lenders and this needs to be factored in against standard considerations such as interest rates and lender fees.
“As well as interest rate promotions, we have also seen banks and lenders come out with discounts on mortgage insurance.
“The best place to source that information is through a mortgage broker as they will be able to run a comparison for you. The fact remains that every dollar you save towards a deposit helps to save money down the track in the form of interest charges and repayments.”