Help please

Are any brokers able to help me with an interest rate comparison please.
My 22 year daughter and her boyfriend are about to purchase a property at Calliope in gladstone, qld 4680. They have saved approximately $28k and have signed a contract for a mortgage in progression house at $250k pretty good buy with comparison properties. They are doing a 5% deposit. The boyfriend is motor machinic with a permanent job taken home approximately $800 pw the daughter in a permanent/casual taking home $400 pw. The interest rate they have been quoted from a broker is 4.27% for variable rate and 4.14% for 3 years for fixed. The reason for the higher rate is because of the 5% and the area calliope is a high risk area so not all lenders are willing to lend. Im just wondering if that sounds reasonable or should she be looking for a better rate. Thanks

 

I wouldn't touch a deal like this - too risky. Sounds like a good rate though.

 

Sorry Terry what's to risky? Their age, the deposit, their jobs, the area or all of the above?

 

All of the above - mainly the location and the LVR.

 

Thanks for that Terry. Personally I'm not worried about the property, it's good valve compared to other properties in the area. The house was passed in at auction and then I think the value was set low to move it quickly. The property had multiple offers over the week including one above the asking price, that purchaser fell through for some reason. Last sold for $460 plus and for $250 you couldn't build the same house. I'm sure you could sell it for a higher price if you were willing to wait and the market didn't decline any further of course. With the prices that we are seeing here ATM it's got to be at the bottom. 95% LVR yes is not ideal. They just need to put their heads down for a little while. Their repayments will be less then what their were spending in rent. Hopefully Gladstone property market isn't far from turning around.

So basically the rates are okay?

 

If the LVR is 95% + LMI, the rate is quite good. However, there are plenty of lenders offering basic variable rates below 4% for 95% inc. Just have to check what lenders are accepting Gladstone securities at that LVR.

 

@Jenko You probably want to find out why the previous buyer fell through, if it was because the bank thinks the property is too risky, your daughter may get rejected as well.

 

Who is the lender they have been presented with?

 

Bank Australia is the lender

 

LVR will be the deciding factor here, both whether the loan is approved but also the rate.

For that LVR in that area I would suggest the rate is reasonable given a lot of banks wouldn't go there above 80% (or less). I wouldn't be worried about getting 0.1% difference in rate though which will amount to $250 difference pa, I would be worried about the bigger picture of Gladstone.

I would be looking at the longer term prospects for the area. I'm no expert so I'd be talking to people in local industry. I have a friend who bought up there at the peak and paid $800k for a property now worth similar to what you're describing. The $250k purchase price obviously has a lot less downside than the $800k but that's what you should be asking questions about, not the $250 saving per annum.

 

Remember “cheap” has nothing to do with price.

What’s cheaper, a $250k house that’ll be worth $260k in 5 years or a $1,000,000 house that will be worth $2,000,000 in 6 months?

Extreme example I know. I’m not saying I can predict which houses will double, and I’m not saying they should buy a million dollar house. I’m just saying avoid the temptation to confuse a low priced house with a “cheap” house. I’m not saying “cheap” has little to do with price. I’m saying they are not even in the same universe.

 

I got the impression they are locals enjoying buying in their area at the low end of the cycle?

 

Yes you have nailed it. The banks are out by180 degrees. It was risky lending in the boom, now the risk like the prices have drastically reduced.

 

They are killing it to get that rate, I am paying way more for lot lower LVR in not as risky a place, but not a capital..... even with no risk rating, I could not get near that now unless it was being fixed.....but am talking IP, but even so, I think that is very good for that area.

You want a shock ? get them to price it with some of the non bank lenders....lol