Hi All, I've spend the last couple of weeks lurking around the forums and have been pretty impressed with the engagement and advice on offer. FHB looking to get into the warming Melbourne market this year, so may have some 'what would you do?' type questions for people with a better read of the market, and more insights into affordable areas. Thanks for having me, James
This is my newbie tip pack: 1) Always use a broker. There's zero situations where you'll be worse off. 2) LMI is a tool, can be good, can be bad. Don't ever let any one tell you it's blanketly bad. It can be very powerful especially for new starters. 3) Reinforce #2 to yourself over and over until you're resistant to people who tell you otherwise. The number of times I've heard even from "professionals" that it's outright bad astonishes me. There's a million things to learn but IMO those are two critical ones to start with
Thanks for the newbie tips, Jaybean! I've done (1). The broker has my documents and is looking at what lenders may give me pre-approval. (2) - I'm slowly coming to the realisation that in this current market I may well have to rely on LMI. While I do have a sizeable deposit, leveraging my borrowing power and buying in a good area will be better for my long term (20+ years) future, so the short term pain may be worthwhile.
It's more than that. So just to build on this: If it takes you another 12 months to go from 10% (100k) savings to 20% (200k), and the market goes up by 300k during that period...it's about as close as you can get to burning your money (a massively simplified example but you get the point). EVEN if you had 20% deposit, there are many situations where it might make sense to still pay LMI. Hell, even if you had 100% cash, you might still have a good reason to use LMI (a more advanced lesson for another day). What if you lose your job and that extra 10% is the difference between you having to sell your house or surviving until you get a new job? People who don't get LMI will say "mortgage insurance only protects the banks", which is technically true, but if you're able to hold onto 10% (100k in this example)...that's a hell of a safety blanket, don't you think? So, sure it protects the banks...but you'd be a fool not to realise it also protects you too. Also guess how much interest it costs you to borrow 10% instead of 20%? $0. Because you toss that surplus money right back into the offset account anyway LMI can be capitalised, which means it's put on your loan and paid off over 30 years. Depending on your loan size it might end up costing you no more than a cup of coffee a day. A cup of coffee is a small price to pay for the security you get in #2, or getting into the market to begin with in #1.
LMI can be a very important tool. But there can be ways to reduce the bill. It used to be calculated in increments of 2% (I don't know if it still is). I once had a loan where I was at 90.5%. By using a cash advance on Visa (which I repaid within two months) to reduce it to just under 90% I saved a substantial amount of LMI, far in excess of the interest on my Visa card.
