November 08, 2013
Andrew Heath, principal of Richmond Mortgage Choice, looks at why paying lenders mortgage insurance can work in a first home buyer’s favour.
If you’re a Richmond first home buyer, saving a deposit can be challenging. Conventional wisdom says it’s ideal to have a purchase deposit worth over 20% of the property’s value because this means avoiding the cost of lenders mortgage insurance (LMI). But, as I explained in a recent edition of Money Magazine, paying LMI could prove to be a money saver in the current market.
Here’s why. Firstly, many lenders will lend up to as much as 97% of a property’s value - inclusive of the LMI premium. So for Richmond home buyers it may not be necessary to save a 20% deposit.
In addition, paying LMI means buying a home at today’s prices. And that can be a real plus in today’s climate of rapidly rising home values.
A number of factors will determine exactly what the one-off LMI premium will be but as a guide, it’s generally between 2-4% of the property’s value. By contrast, figures from research group RP Data, show home values in Sydney have risen by 13.4% so far this year – with a climb of 2.4% in October alone. Put simply, property values are appreciating at a far more rapid rate than the cost of LMI.
The thing is, it would seem to be a no-brainer to buy today and pay LMI rather than hold out to save a bigger deposit only to end up paying more for a first home.
However this overlooks the key consideration for any first home buyer in Richmond, and that’s only taking on a loan you can comfortably afford to repay.
It can be a juggling act for Richmond first home buyers, and the best option is to call in and speak with myself or one of my team at Richmond Mortgage Choice to see what would best suit your goals.
You can find us at Shop 1/37 Lennox St or call us on 4578 9904 or 0411 550600 7 days a week. Alternatively visit www.mortgagechoice.com.au/andrew.heath or email me Andrew.email@example.com.