Money

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 noelwhit@gmail.com

Topics:  home loan, mortgage, noel whittaker, opinion



Backpacker tax scrapped as changes bite on farmers

Rob Bauer of Bauer's Organic Farm. The farm has launched a paddock-to-plate online shop. Photo: LucyRC Photography

BREAKING: Farmers breathe sigh of relief

New app to help local fishermen

Fishing at sunset. Photo: Barry Leddicoat / Sunshine Coast Daily

New app to help recreational fishers access information

Shark attack victim to remain in hospital

A photo of Ballina surfer Cooper Allen recovering in Lismore Base Hospital shared by his friends on social media

Ballina surfer attacked by a great white shark yesterday morning

Local Partners

'Baby' recreates famous Nirvana cover shot 25 years later

The baby from Nevermind album has recreated the iconic cover shot.

PREVIEW: Luke Cage origin story is a strong addition to MCU

Mike Colter in a scene from the TV series Marvel's Luke Cage.

MIKE Colter stars as latest Marvel superhero to get his own series.

Kate goes down fighting in heated Survivor elimination

Australian Survivor contestant Kate Campbell.

YOGA teacher's 'good guys' alliance fails to get off the ground.

Emily Blunt's (almost) singing career

Emily Blunt nearly became the British Britney Spears.

Angelina is blocking calls from Brad Pritt

Angelina Jolie has reportedly blocked Brad Pitt's number.

Apocalyptica 'seek and destroy' sceptics with 'master' set

Apocalyptica play Max Watts in Brisbane on their Shadowmaker Tour.

Review of final show of Apocalyptica's tour

Clarence Valley property prices go through the roof

Buyers are hungry to sink their teeth into the Clarence Valley

UPDATE: Former rodeo champ's sale rained out, now back on

Larkhill local Ken Consiglio is having an auction of most of the things on his property.

'People kept showing up and we had to turn them away'

Couple build their own 'tiny house' for $45k

Holly Bowen and Oli Bucher built their "tiny house" themselves, only hiring a plumber and an electrician. Photo/supplied

The house, which is built on a trailer and can be towed.

Sunshine Beach property breaks real estate record

The property overlooks Sunshine Beach, as the backyard lawn meets the sand.

Sunshine Beach mansion sale smashes real estate record

NEW HOME: Agents to the rescue for family of nine

RELIEF: Tanya Cone (middle) with her kids and McKimm's Real Estate property managers Regan Firth and Nadine Greenhalgh who helped find her family a home.

DEX article prompts property managers to help family find new home

SOLD: Historic hotel finds new owner

Post Office Hotel Grafton

Photo Adam Hourigan / The Daily Examiner

Pub in new hands and heading in a brand new direction