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

Topics:  home loan mortgage noel whittaker opinion

Dragon boat invasion on river for Jacaranda weeekend

IN TO WIN: Grafton Dragon Boat Club show off its new Gen 4 boat.

Dragon boats will invade the Clarence River this weekend.

Angourie assembles strong team to defend home surf

SPRAY: Up-and-coming Angourie surfer Dakoda Walters practises his turns ahead of the Australian Boardriders Battle this weekend.

Australian Boardriders Battle hits Clarence Coast

Premiers' batting 'a little rusty' going into round 3

IN FORM: Brandon Honeybrook is hitting them well.

Round up of Lower Clarence Cricket Association First Grade fixtures

Local Partners

Is it time for a skate park extension in Yamba?

IF YOU ever want to be truly terrified, swing by the Yamba skate park on any given day.

Angourie assembles strong team to defend home surf

SPRAY: Up-and-coming Angourie surfer Dakoda Walters practises his turns ahead of the Australian Boardriders Battle this weekend.

Australian Boardriders Battle hits Clarence Coast

Grafton does the Time Warpt again

The Time Warpt Dinner and Show is set for the Grafton District Services Club on Saturday night.

Rocky Horror dinner show comes back to Grafton

OPINION: Magpies welcome Binge back to the nest

The Lower Clarence Magpies v Casino RSM Cougars at Maclean Showground. Pictured for the Magpies is Ryan Binge (centre).

Lower Clarence Magpies have good news ahead of AGM.

Race facts and stats a winning combination

Impress colleagues with Melbourne Cup trivia

Birdy's voice soars during concert

English singer Birdy proves her skill during a recent concert.

The singer, 20, has acquired mythical status in the music world

Miley Cyrus finally confirms engagement to Liam Hemsworth

Liam Hemsworth and Miley Cyrus.

Eccentric singer confirms long-held rumour

Former Oasis frontman threw popcorn at his brother

The Gallagher brothers have famously feuded for many years.

Oasis brothers still haven't made up

OUR SAY: Why musicians should be called 'tradies'

Should bands be paid every time they play? Journalist and musician Tom Gillespie thinks so.

We need to change the way we think about musicians.

Hits from the stage and screen played live

AFTERNOON DELIGHT: The Clarence Valley Orchestra and Chorus on stage at the Saraton at this year's Anzac concert. Their much-anticipated An Afternoon at the Proms is on this Sunday with special guest Sound of Music star Nicholas Hammond.

From Star Wars to Ben Hur, the Proms is all about TV and movies.

Want to own one of Australia's best restaurants?

TOP GONG: Mooloolaba Spice Bar has been named in TripAdvisor's Top 10 Australian restaurants for 2016.

Here's your chance to pick up one of the Coast's favourite eateries

Maclean's highest house sale this decade

SOLD: Ray White real estate agent Alan Bruchert has just put a new sticker on Maclean's most expensive house to sell in a decade.

Unique riverfront home sells for more than $920,000

Tough times in CBD: Woolies says goodbye Ipswich

Woolworths in the Ipswich Mall.Photo: Rob Williams / The Queensland Times

The last day of trading will be January 1

Look at me! Kath and Kim home up for sale

Kath and Kim from the iconic Aussie TV series.

'Crack open the Baileys and grab a box of BBQ Shapes'

Hinterland horse stud passed in for $8.25 million

UNREAL: This Maleny estate is incredible.

12-bedroom hinterland horse stud still available

Ready to SELL your property?

Post Your Ad Here!