Loan breakup proposal by broker

Hi All,
We are looking at borrowing 670k-ish for a projected 750-800k property. We have got 160k saved up. My broker is suggesting the following break up with St. George (split loan):
1. Variable 100k at 3.24% with offset (I told him we could save around 50-70k in 2 years)
2. Fixed remaining at 1.89% for 2 years.

The reason he suggested St. George is because our LVR comes between 80 - 85% and St George is charging 1$ LMI for 80% < LVR < 85%

Does this loan breakup sound good?

The other option is to pay LMI and go with other lenders.

 

It's great if you're happy to wait 6 months for settlement.

 

How much would lmi be from another lender and what would be the benefit?

 

Sounds reasonable.

No need to go to another bank and pay LMI of around $10k when you can pay $1.

 

Given your stated ability to save money, there's a reasonable logic in the split amounts. I like to take a similar approach.

The 85% no LMI offer from the St George is attractive. When you consider the rate preimum vs the equity available and LMI cost, it's worthwhile.

However the service from St George is a real problem. It may take over a month for them to even look at the application. There's stories on broker forums of applications taking between 3-6 months to get funded. This might have been understandable for a time given the pandemic, but the banks have had plenty of opportunity to resolve these issues by now.

 

That's concerning. We are looking to buy in a month or max 2. Should we look at other options.

The LMI from other lenders would be (as estimated by the broker) around 7k-ish for a loan of 800k and 160k deposit. Generously calculating costs (31k stamp duty, 5k other incl buffer) leaves us with 124k for deposit which is 15.5% of the loan. We could make it 15 by adding more.

Yeah, same thing said by our broker, he suggested around 7k LMI but that does not change the situation. Still a large amount

That seems like a trend with St George. I'll talk with the broker today regarding timelines and see what he says. The other option is to lower our borrowing amount which is quite difficult. We are aiming for a property between 700k and 800k which seems like the average price for now in western suburbs. Going lower would have us move to suburbs with lower than average schools which we don't want to do.
What are our options otherwise?

 

Your options are really very simple:
1. Don't buy yet, wait until you've got more equity. The problem is the next house will also likely cost more in the future.
2. Borrow 80% and buy a cheaper house on the back end.
3. Use a different lender and pay the LMI.
4. Use St George to avoid paying the LMI, but be prepared to wait.

The real problem is you're starting with a high LVR in the first place. There's a good argument for borrowing 90% when you buy as it means a lower deposit at that time. The down side is when it comes to equity releases, the starting line is 80% LVR and 90% is already 10% back from the starting line. This means you have to make compromises.

 

Makes sense. Thanks for your input.

 

You can have low rates and low LMI and long wait times, or low rates , pay more LMI and shorter wait times . Is the LMI fee worth paying to get the property now? Look, almost every lender is kinda slow... some are stuck in the mud more than others, so vendors everywhere are dealing with delayed settlements and have been for many months..... if your vendors will wait and you want the $1 LMI, go with STG. If they wont , and you want this property, go to Macquarie or NAB or Firstmac or Suncorp etc.... they will get the deal done for you and settled in a reasonable time. But you will pay LMI

 

Yeah, fair enough. We are not waiting on a property right now, so we can wait. Might as well wait then, if it comes in a month or two, we'll have our salaries to add into the buffer.

 

Citibank have a product with no LMI up to 85% LVR. You will pay a higher interest rate and want to refinance away from them as soon as you get the LVR down to 80%. Based on your expected savings, it wouldn't take you long but there is a bit of effort involved to maybe save a few grand.

 

Just checked my broker is accredited with Citibank. Will ask him today. Thanks for the suggestion.

 

prices might be 100-200K higher by then.... or not. Hence, no right answer

 

Update:
Just had a chat with the broker. Since the last meeting he has able to have a discount on the variable loan reducing it from 3.24 to 2.64.
Regarding timelines he said St. George's promotions are ending on 31st March, 2021, they are hopefully gonna speed up after that. He also said he recently applied with St. George for 2 clients in Feb and March. First one got it in 4 weeks, the second is on track to get it in 4 weeks. So 4 weeks is the most probable he said.

 

Just so you're aware, this is standard procedure. All of the major banks have standard pricing in the early 3% range, but with every deal we negotiate the rate, expecting about what you've been given. Nothing special, the broker has done their job as should be expected.

It's just really annoying that the major banks make us do this for every single application instead of making their default rates competitive. They're taking advantage of people who don't know better.

 

Aah, today I learned.

 

That's what I did.. more or less. After 15 months I requested a valuation of our house and we were able to get the LMI to just below 80%. Requested a reduction of 0.25% of our rates as per their conditions and they honoured it.

But still, I'm looking at changing banks and maybe fix a part of the loan.

 

The main driver of traffic for St George is the refinance rebates and they've been extended so they won't end on 31/3. The $1 deal still requires LMI sign off and therefore most assessors need to escalate this to a senior credit manager for sign off which slows down the process.

With some lenders like St George, some brokers have higher level status based on application metrics (quality, conversion etc) where the process can be much quicker. That said if you're self employed it is going to be a long wait regardless of their status.

 

My file has been referred to a senior credit manager to review at ANZ. still waiting in the queue. Dont know how long is the waiting... it is killing.... I am anxiously waiting here.
Bascially, the broker said to me that my borrowing is relative high. By bank's calculator, I can serve for sure, but the monthly surplus is only $50 dollars. No problem with my equity, borrow around 70% only. PAGY + rental income. DTI maybe too high, 7.7 ish (existing loan +new)

Although it passes the system, but I am told it needs a second approval. Is this normal? Am I worried too early? It is a land purchase