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Only around one in two Australians know what borrowing capacity is all about . It simply means how much a lender believes you can comfortably borrow based on your income, savings, monthly living costs and even credit card limits.
The ‘loan-to-valuation ratio’ (or LVR) is the percentage of a property’s value you are borrowing. So when a lender offers a maximum LVR of 95%, you’ll need to stump up a deposit of at least 5% of the property’s purchase price. Keep in mind you’ll also need to budget for additional buying costs like stamp duty and legal fees, which can add up to a further 5% to the cost of purchasing the property, on top of the final sale price.
Lenders Mortgage Insurance (LMI) is something you will be required to pay if you borrow over 80% of a property’s value. LMI isn’t something you can shop around for – your lender will let you know the one-off premium. Many people don’t realise that LMI protects the lender, not you, in the off chance that you can’t keep up the loan repayments. To avoid this extra cost, try saving a bigger deposit or getting a guarantor for your loan.
Refinancing is the process of taking out a new loan to replace your current loan. Why would you do it? To enjoy the savings of a better rate, gain access to improved loan features or dip into home equity. Be sure to do the sums first though, as refinancing comes at a cost. If you’re not saving more than $5,000 over the long term, refinancing may not be worth the investment. We can crunch the numbers for you to help you decide if refinancing is the right move for you.
This helps you identify the true cost of a loan. It is a rate that includes most of the upfront and ongoing fees you’ll pay on a loan. So when comparing the benefits and cost of different loans, the comparison rate, alongside the loan’s other features, is a useful tool.
If you’re uncertain about any other property or loan terms, contact us for a clear explanation.