Bank Wanted Mortgage Broking Fees Transferred to Customers

mortgage broker sydney - demonstrators holding up placards saying; I wish this was fake newsA big four bank almost overhauled its broker remuneration model so that the cost of mortgage broking services would be transferred to the customer, the royal commission heard. Here’s how to prevent that from happening.

The Royal Commission recently revealed that back in 2017 the Commonwealth Bank planned to replace commissions paid to mortgage brokers with a flat fee, but baulked at the last minute.

CBA’s CEO Matt Comyn told the royal commission that CBA believed the most attractive model was one where “customers would pay a broker”.

The move would have saved CBA $197 million over five years if everyone in the market moved with them.

However, without regulator intervention to drive an industry wide move to this model, CBA feared they’d be left hung out to dry by the other big three banks.

“We came to a view that nobody will follow and we will suffer material degradation in volume,” Comyn said.

Not only would this model be a major disadvantage to consumers going forward, it would reduce a new broker’s revenue on an average loan to about a third of what it currently is.

Basically, the only real winner would have been the big banks.

Not the customers. Not the mortgage brokers.

The banks.

Some interesting stats

Here are some interesting statistics from Deloitte Access Economics that may explain why CBA was looking to limit the growth in the mortgage broking market:

– Over the past three decades brokers have contributed to the fall in net interest margin for banks of over 3% points. This saves you $300,000 on a $500,000 30-year home loan (based on an interest rate fall from 7% to 4% pa).

– 27.9% of residential loans are arranged through lenders other than the big four banks and their affiliates, providing competition and more choice for consumers.

– On average, mortgage brokers have 34 lenders on their panel and use 10. It’s this additional choice that adds competition in the market. The only winners from less competition are the big banks.

– 56% of residential loans were settled by mortgage brokers in the September quarter in 2017. This is up from 44% since 2012.

– 70% of a broker’s business comes directly or indirectly from existing customers, demonstrating high levels of customer satisfaction.

– 9 out of 10 customers are satisfied with the services provided by mortgage brokers.

It’s still a live issue

Basically, the only reason CBA didn’t pull the trigger on the move was because it was worried that if it did, the other lenders wouldn’t join them. Instead, they’d swoop in and steal their business.

However, if the regulator enforced a flat fee model, then all the lenders would have to get onboard.

That’s exactly what could happen if it becomes a royal commission recommendation, which is a possibility considering the extensive line of questioning from the royal commission’s counsel assisting, Rowena Orr.

How can you help?

The best way is to contact your local MP to let them know you’re happy with the mortgage broking service we’re currently providing.

By letting your local Federal Member of Parliament know this you can help prevent the cost of our future services being transferred from the bank over to you – and you’ll also be showing your support for us.

Additionally, head over to the The Adviser and Momentum Intelligence survey to share your experience with us. It’s anonymous and only takes two minutes to complete.

If you’d like any more information on this issue don’t hesitate to get in touch. We’d love to speak to you more about it.

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Stress tested your home loan recently?

 Don’t stress

Best Mortgage Brokers - showing the back of a lime green school bus that has the hash tag message written on it - never stressSeven in 10 Australian mortgage holders have not stress tested their home loan. But don’t stress, it’s much easier to do than you think.

Deloitte Access Economics’ latest report makes for pretty interesting reading.

It turns out the average Australian has a “wide-ranging hesitancy to make any sort of change” when it comes to their mortgages and other financial products.

“Why is it that educated consumers who know they’re not getting the best deal on many of their household products are so unwilling to take action to improve their household finances?” asks a surprised Deloitte.

Interesting mortgage stats

It turns out that 41% of Australians with a mortgage don’t check for interest rate changes because they either have no interest, don’t know what the RBA cash rate is, or do not see its relevance.

Even more interesting is that 68% of people say they have never stress tested their home loan.

“This is a particular worry,” says Deloitte.

“Recent estimates show that a 0.5% increase from current interest rates would cause mortgage stress to jump from one in four mortgaged households to one in three.”

Worse still, a 2% increase would throw half of all mortgaged households into stress.

Now, that might sound like a big increase, but don’t forget that it wasn’t so long ago that interest rates were at that level. In fact, it was only six years ago in June 2012.

So how do you stress test a home loan?

Simple.

Calculate how much extra a 0.5%, 1% and 2% increase on your mortgage would cost you each month and whether your budget can allow for it.

If you’d run into trouble, give us a call and we can work through some risk mitigation options with you, which could include locking in a home loan rate.

Why don’t people care about getting a better deal?

Interestingly, 1 in 3 people know there are better deals out there, while 1 in 5 don’t bother to check for a better deal.

It turns out there are three key reasons people don’t change to a home loan that would see them better off financially, with the first being decision making paralysis.

“Too often, many consumers get stuck before making a choice – and then they do nothing,” explains Deloitte.

Another big reason is people “hate feeling dumb”.

“Consumers also hesitate when they fear or worry about the possibility of making a bad decision. This, coupled with the fact that people tend to avoid what makes them nervous,” adds Deloitte.

The final key reason is that people simply put it off.

“Outcomes set in the distant future typically lack a sense of urgency in contrast with everyday needs, making it easy to defer decision making to a tomorrow that never arrives,” says Deloitte.

How can you overcome these barriers?

Well, here’s the good news. We can help you overcome all three.

For decision making paralysis we can come up with a shortlist of options, reducing the choices you need to make.

Worried about feeling dumb? I bet you we’d feel pretty dumb if we did your job for a day too. But we make it our business to help educate you and bring you up to speed in this market.

And how can you overcome avoidance? Simple. Give us a quick call today and we’ll get the ball rolling for you. You’ll be surprised how little time and effort it takes.

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How much does it cost to own a pet?

mortgage broker sydney - Chinese Shar-Pei dog playing in long grassWe thought we’d have a little fun this week and look at how much it costs the average Aussie family to own a pet. After all, two in three households have one and very few budget for them!

Let’s be honest, owning a pet goes hand-in-hand with the great Australian dream of property ownership.

So let’s be clear here: we’re definitely not making a case against pet ownership. However as Christmas time usually coincides with a spike in pet purchases, it’s a good time to look at the monthly cost factor.

Because if you’ve decided to take on the responsibility of welcoming a pet into your household, then it’s something you oughta plan for and do right!

First, how many of us own pets?

Believe it or not, but two in three Australian households own a pet.

Yet how many of them do you think run a proper budget for it? Probably very few.

And when you consider that more than $12 billion is spent on pet products and services every year, that’s a lot of unallocated money!

So if you’re looking to get a pet for your family, here’s the most common options available, listed from most expensive to cheapest.

Dog

If you’re looking at adding a puppy or rescue dog to your very own wolf-pack as 38% of Australia households have already done, expect to pay about $1475 per year.

Basically, you’re looking at an average of $123 a month for food, vet care, health products, grooming and boarding.

To avoid any vet bill blow outs, it might also be worth considering pet insurance, which will cost an extra $293 per year. Or $25 per month.

And while we’re at it, here’s a fun fact: the number one thing that dogs eat that makes them sick is underwear! So be sure to keep them out of reach!

It’s also worth noting that the above figures don’t factor in upfront costs, which can range from $1000-$5000 to purchase a select breed, or $300-$500 to adopt an RSPCA dog.

Cat

If you’re more of a cat person, like 29% of Australian households, expect to pay $1,029 per year. That’s about $86 a month.

Pet insurance is slightly cheaper for cats, coming in at $20 a month, but then again – cats probably aren’t underwear connoisseurs!

It costs between $100 and $300 to adopt a cat from the RSPCA – depending on their age – while a select breed will cost you between $1,000 and $2,500, and sometimes even more.

Bird and fish

If you’re looking to ease yourself into pet ownership, welcoming a bird or fish into the fold is a much cheaper option.

It costs just $115 per year on average to own a bird, while fish are even cheaper at $50 per year.

Final word

As you can see, purchasing a pet is unlikely to cost you an arm or a leg (so long as they have adequate play toys!).

However, you can minimise the impact it has on your bottom line by including the monthly amount in your family budget, and protecting against vet cost blow-outs with pet insurance.

If you’d like to know more about budgeting, get in touch. We’d be happy to help out.

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6 Christmas Tips to Help You Save this Silly Season

mortgage brokersydney -lady with facial and head christmas attire holding a sandwich plate and a milky drink glassMost of us roll our eyes when we start seeing shopping centres spruik Christmas merchandise in November. While it’s important not to get caught up in the festivities too early, now’s actually a great time to start prepping to ensure your budget doesn’t blow out over the silly season.

The best bit? By following some of the below tips, you can turn the retailers’ early mind games against them and save money instead!

1. Buy food ahead of time

Christmas time tends to lead to a lot of socialising. Even if you aren’t the one catering, requests to bring a plate can add up over time.

Make a point of keeping an eye out for food and drinks specials ahead of time and buy items like boxes of chocolates, long life snacks and drinks when they are on special. That will make it much easier to stretch the food budget over Christmas.

2. Opt for Secret Santas

For people who have a large family or friendship circle, Christmas can lead to a long list of presents to buy. Many people prefer not to get extra clutter for their kids, so suggest a Secret Santa arrangement instead of buying for every person.

This way you can put more thought into each gift as well as not creating more stress.

3. Homemade wrapping paper

If the end of term results in your kids bringing home sheets of artwork, why not recycle these and use them for wrapping paper for the extended family?

Not only does this mean that the kids get to see their artwork being passed on to loved ones, but it also saves you money on buying wrapping paper that will be in the bin by Christmas morning.

4. Shift the focus

Rather than dwelling on social media posts of the perfect Christmas morning with matching pyjamas, shift your focus to the true meaning of Christmas: helping others who are less fortunate.

For instance, instead of getting new books for Christmas Eve story time you could choose books from the library and make a donation to charity that helps literacy in at-need communities.

5. Keep a track of your spending

With a large percentage of Australians overspending at Christmas (and feeling guilty about it), it’s important to keep a budget for Christmas and any associated events – like holidays – over that time.

By following a budget, and starting now, you can spread out your spending – $200 a week over five weeks is much better than $1000 in the week before Christmas.

6. A final few tips

– Create a list of who you need to buy for and brainstorm present ideas before you go shopping.

– Make your own gifts.

– Buy online when sales specials are on. This can help you avoid pressure from sales staff and impulse purchases.

– If hosting a Christmas day event, organise it early so attendees can help out with the food and drinks.

Want some extra help?

If you’re struggling with your budget and don’t know how you’re going to make the money stretch over Christmas, give us a call.

We’d love to help you come up with some strategies to ensure that you and your family get to make the most of the silly season ahead.

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Keen to Jump into a Property Hotspot?

On the up and up. Keen to jump
into a property hotspot?

master broker sydney - looking down on a pair of feet in sand shoes parachuting down to earthWith housing values falling across half of Australia’s capital cities over the past year – and the media well and truly letting us know all about it – it can be all too easy to forget many regions are doing well. Here’s where property prices have recently experienced healthy growth.

The good news is that almost half of Australia’s 88 sub-regions have experienced growth in housing values over the past twelve months, according to CoreLogic.

These sub-regions are more formally known as SA4 sub-regions, which have populations between 100,000 and 500,000 people.

“Half of these regions have recorded a higher rate of annual capital gain relative to their five year average rate of growth, suggesting some acceleration in market conditions,” says CoreLogic’s Tim Lawless.

“In fact, 35% of the SA4 sub-regions have recorded an improvement in their rate of capital gain over the past 12 months relative to their five year average rate of growth.”

So where’s hot?

Two words: regional areas.

In fact, 57% of all regional areas recorded a rise in dwelling values over the past twelve months, while only 39% of the capital city sub-regions recorded an increase.

Here’s a list of the top 10 healthiest growth markets, all of which outperformed their five-year average.

1. Geelong, Victoria, 11.8% growth

2. Hobart, Tasmania, 10.7% growth

3. South East, Tasmania, 9.9% growth

4. Launceston and North East, Tasmania, 9.3% growth

5. Ballarat, Victoria, 7.1% growth

6. Central West, NSW, 6.1% growth

7. Sunshine Coast, Queensland, 6.0% growth

8. South Australia Outback, SA, 5.8% growth

9. Latrobe – Gippsland, Victoria, 5.3% growth

10. Northern Territory Outback, NT, 5.3% growth

Why are regional markets healthier?

The ‘healthier’ conditions across regional markets can be attributed to a range of factors, says Lawless, including:

More sustainable growth conditions: “Most regional areas have seen relatively sedate housing market conditions compared with the heroic gains across Sydney and Melbourne. The more sustainable history of price growth has kept a lid on housing affordability and made these markets attractive to migrants,” says Lawless.

The ripple effect: “A ripple of demand has been emanating from the largest capitals towards the satellite cities where housing is generally more affordable and lifestyle factors can be appealing.”

Sea change: “Many coastal and lifestyle markets have benefited from a rise in buyer demand, either from those looking for a new residence, second home or investment option.”

Bounce back: “Many of the hard hit mining regions have now levelled out and are now showing some growth.”

Capital Cities that have Experienced Growth

There are some capital cities also doing well, says Lawless.

In Brisbane, seven of the nine SA4 sub-regions have seen a rise in values over the past year.

In Adelaide, three of the four SA4 sub-regions have recorded an annual gain.

Hobart is also experiencing significant growth (10.7%), as seen by its second place spot on the list.

“While conditions are broadly slowing, especially around Sydney and Melbourne, many areas of the country are benefitting from a history of more sustainable growth rates, improving demand and reasonably strong economic conditions,” says Lawless.

Interested in Finding Out More?

If you’re a first home buyer or an investor looking to purchase property in an area that’s recently experienced growth then get in touch.

We’d love to help you source a great home loan and help make your property ownership dream become a reality.

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Which capital cities have performed best over the past 20 years?

Sydney? Melbourne? Perth? Find out which of Australia’s capital cities have performed best in the property market over the past two decades.

http://mastermortgagebrokersydney.com.au - map of australia with coloured pins stuck into numerous locations on itWe all love to back a winner.

Some of us painstakingly pore over the most minute details, others tend to just go with their gut.

Either way, it never hurts to have a quick look at past performance.

With that in mind, this week we’ll take a look at the Australian capital city real estate market over the past 20 years and identify which cities were the hottest performers across each market cycle.

The data, compiled by not-for-profit association The Property Investment Professionals of Australia (PIPA), has been broken up into four lots of five-year periods between 1998 to 2017.

And just a quick heads up: just like a footy premiership table, some years your team is hot, and every now and then it’s not.

2013 to 2017 increases

– Sydney (74.6%) and Melbourne (63.7%) led the way
– Darwin (-10.5%) property prices fell and Perth (0.6%) only experienced slight growth
– All capital cities weighted average growth: 48.4%

2008 to 2012 increases

– Darwin (36.8%) and Melbourne (18%) topped the ladder, but increases paled in significance to surrounding periods
– Hobart (1.9%) and Brisbane (3.2%) experienced the slowest growth
– All capital cities weighted average growth: 12.2%

2003 to 2007 increases

– Perth (139.8%), Hobart (126.4%) and Darwin (106%) property prices more than doubled
– Sydney (16.4%) and Melbourne (59.9%) performed worst
– All capital cities weighted average growth: 53%

1998 to 2002 increases

– Melbourne (88.2%) and Sydney (84.2%) led the way
– Darwin (5.1%) and Hobart (21.7%) experienced the most sluggish growth
– All capital cities weighted average growth: 70%

Additional observations

So hang on, where were Brisbane, Adelaide and Canberra?

In most periods they sat smack-bang in the middle of the table experiencing steady growth.

PIPA chairman Peter Koulizos says the stats prove Aussie investors and homebuyers over the past two decades have made solid returns across almost every capital city – not just Sydney and Melbourne.

He adds that while long-term investors invariably come out ahead with Australian capital city real estate, the biggest gains are made by identifying markets that have bottomed and are set to improve.

“Of course, many buyers don’t have access to the information or experience needed to monitor and predict property cycles,” he says.

“Investors should seek independent qualified property investment advice to give themselves the best chance of getting the best returns on their money, as timing the property market can be just as important as time in the market.”

Final word

Navigating the property market can be tricky. And sometimes you can be so caught up in the process of trying to back a winner that you don’t have time for anything else – like trying to organise finance.

So if you’d like a hand with purchasing your dream property, give us a call (02 8861 1689), we’d love to help you out.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

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Six ways to ride through life’s tougher times

finance broker - photo of a young lady's out stretch arm with thumb up trying to hitch a ride

Sticking to a financial plan – such as paying off a mortgage – can be a long journey that’s punctuated by high highs and low lows. Here are some tips to get you through the tougher times.

October is generally the month that people all around Australia and the world dedicate to improving awareness around mental health.

According to Mental Health Australia, 1 in 5 Australians are affected by mental illness, yet many don’t seek help because of stigma.

The thing is, mental health and financial safety are strongly linked, with many studies showing personal finances are one of the main sources of stress.

With that in mind, below we’ve outlined six ways you can help protect your mental health from being eroded by financial concerns.

First, however, we believe it’s important to add that if you’re feeling severely down or depressed, please contact your GP or call Lifeline on 13 11 14.

1. Know the warning signs

Signs that you may not be coping as well as normal include:

– Arguing with the people closest to you about money
– Sleeping difficulties
– Feeling angry, fearful or resentful
– Sudden mood swings
– Loss of appetite
– Not wanting to hang out with family or friends as much as usual.

2. Exercise daily

Exercise releases feel-good chemicals such as endorphins and serotonin. It also gets you out and about, which minimises your feelings of loneliness.

You don’t have to run a marathon or anything either. Just a brisk 30 minute walk each day will deliver both physical and mental health benefits – and help you sleep better at night.

3. Eat well

There’s not much use doing all that exercise if you’re just going to smash a few Big Macs straight after.

Instead, try cooking some new healthy recipes with your loved one, or inviting a friend you haven’t seen for a while to come eat with you.

A healthy diet not only improves your physical health, but it’ll make you feel better too.

The best bit? Cooking uses brain power, which will help distract you from any issues that are making you down or anxious. And they’ll make you proud of your gourmet creations, of course!

4. Reach out to support networks

Make an effort to reach out to and catch up with family, friends and other members of your community.

Don’t wait for them to reach out to you – be the one who initiates contact.

It doesn’t have to cost you anything extra, either. Kill two (or three!) birds with one stone and invite them over for a walk, or a home-cooked meal.

5. Positive sense of identity and an optimistic outlook

Always look on the bright side of life.

For example, if you’ve recently become redundant, look at it as an opportunity to launch into a new job, or finally give running your own business a shot.

Also, adopt a positive attitude to seeking support. Rather than feeling down about seeking help, take pride in the fact that you’ve got the initiative to recognise when you’re not feeling up to par.

6. Improve your financial literacy

Sometimes, our finances can feel all too overwhelming, which in turn, gets us feeling down.

If you fall into that category, brushing up on your financial education can help you feel a whole lot better about things – not to mention equip you with the tools you need to improve your budget bottom line.

Our regular blog covers a wide range of topics that can help you improve your financial literacy.

Alternatively, don’t hesitate to give us a call if you’re worried about your finances, such as paying off your mortgage.

We’d be more than happy to workshop some ideas with you to help improve your situation and get you sleeping better at night.

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Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

What Brokers Never Tell You

What Some Mortgage Brokers
Don’t Want To Tell You

Recently I was reading an article from http://banking-and-financial-services.news.top4.com.au/ about mortgage brokers and the headline was “4 Things Your Mortgage Broker Will Never Tell You” and it went something like this; Please note; The maroon writing are my own personal comments.

home loans spelled out with scrabble letters in dark green on ivory coloured tokens laying on a mustard yellow backgroundAre you on the hunt for a home loan and considering recruiting the help of a mortgage broker? While mortgage brokers can be a great resource if you have a more complicated home loan or need a little mortgage advice, before you go down this road it’s important to know exactly what you’re signing up for.

So to help you decide, we’ve called on Mozo’s property expert Steve Jovcevski to reveal the common things a broker will never let you in on:

‘Of course Steve Jovcevski is going to be totally unbiased, right?’

1. Brokers don’t compare the entire market
Most brokers use an aggregator, which is a third party who has the accreditation to deal with the lender on the broker’s behalf.
Steve explains, “these aggregators only compare a select number of providers and home loan packages, which means when you use a broker you won’t have access to the entire home loan market and the lowest rates in the market.”

Smaller lenders offering super low rates often aren’t found on broker panels because they can’t afford to pay the commissions.

‘This can be true in some instances, except the part about the commissions. When a broker submits a customer’s loan application to a lender they virtually do so on a platter. In other words the broker has used their capital resources to bring the customer to the bank; the bank has had no capital outlay in recruiting that customer.

Also, many of these small lenders can be mortgage managers. In other words they are not strictly lenders in the true sense. They are acting on behalf of a money wholesaler who in actuality’ will be holding the title for your property as security. If the mortgage manager goes out of business the loan will revert back to to the wholesaler who might sell your loan off to the highest bidder.’

jigsaw puzzle in the shape of a house picturing bank money notes

2. Brokers receive a higher commission for recommending certain home loans
If you sign up with a home loan through a broker they will get paid a commission by the lender, which is a percentage of your loan amount. According to Steve, lenders often run a “commission special”, which means the broker will be paid a higher percentage of the loan amount if they recommend that product to a customer.

While brokers must reveal the commission they receive in the loan doc, they won’t reveal which lenders are offering the biggest commission percentages of the loan amount. “This drives broker behaviour, as the lenders that pay a higher commission percentage often receive the most leads from the broker,” says Steve.

‘In the main this is not true, brokers look to cultivate long term relationships with their customers, because they realise that some fish grow into big fish. If your butcher keeps selling you tainted meat you’re going to find another butcher. If you buy a car from one dealer and then later find that same car at another dealer for $5,000 less there’s a big chance you’ll never go back to the dealer who sold you the car in the first place.

The facts are smart brokers negotiate with lenders to get the very best interest rate they can for their customers in order to consolidate the relationship they have with their customers.

Additionally, there is very little variation in the commissions most lenders pay anyway, with the exception of specialist lenders who cater to alternative loans such as loans for bad credit loans applicants.’

silhouette of a mortgage broker in suit with briefcase trying to run up an electronic graph arrow

3. Brokers are not property experts
While mortgage brokers can help you decide on the home loan you’ll go for, Steve says it’s important to remember that they are not experts when it comes to providing you with advice about the type of property you should go for or the tax deductions available to you.

“For this type of information, you will need to speak to a financial advisor or tax accountant that specialises in property.”

‘So what, you probably never went to the broker to get property advice in the first place, they’re home loan experts not real estate agents.’

4. You can do it yourself
Since brokers only have a number of home loans that they offer to their clients, they will generally not reveal what the best interest rate in the market is. “To find this out, home loan borrowers need to search the home loan market themselves,” advises Steve.

‘Of course you can do it all yourself, but why are mortgage brokers so popular these days? Why are they now writing 55% of all the home loans in Australia today? Primarily they save their customers time and money. They do all the hard yards of finding the lenders best rates that aren’t advertised on any web site. They will save you time by accurately knowing what documents are required with any given lender and once the application is submitted work on pushing it through the bureaucratic banking system. While all this is happening you can lean back and enjoy your cappuccino.’

white cup of capuccino sitting on a white saucer

Rather than spending hours visiting each lender’s website, use a reputable home loan comparison website like Mozo.com.au to compare home loans side by side and find out which lenders are offering the best home loan rates.

Mozo compares more than 550 home loans from banks, non-bank lenders, credit unions and building societies to help you find the best value loan for your needs.

Pretty slick article don’t you think?

Now you shoot over to his website and what do you find, a comparison website selling anything and everything financial, including home loans. How do they work? Well it’s very clever, you see a lender you like and you click on the button that says ‘Go to Site’ and lo and behold you have to fill in all your personal details.

What happens next? You guessed it you get a call from a telemarketer, but you knew that was coming, right?

So, Steve Jovcevski, how do you make your money? That’s a pretty expensive web site you have there.

man in grey shirt, gold tie with glasses sitting at a table with message the good news is I'm not most lenders superimposed on the photo

The bottom line is, mortgage brokers need your support as they have been the major reason that competition is now so keen between lenders. There’s a number of good reasons as to why they are so popular, but the bottom line is they look after their customers and they do a good job.

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Lenders Mortgage Insurance – Who Does It Protect?

According to figures provided by the Australian Prudential Regulatory Authority (APRA) Australian borrowers in the first half of 2016 have been forced to pay almost $500,000,000 (1/2 billion dollars) on approximately 100,000 lenders mortgage insurance (LMI) policies.

One of the inherent issues with the scheme is quite a few borrowers don’t fully understand it. Many think they are the ones being protected if they default on their loan when they sign up for these expensive policies.

Although some of these polices can cost upwards of $40,000 on top of the borrowers mortgage they in fact protect the bank, not the borrower in the event of the borrowers defaulting on the loan.

What is Lenders Mortgage Insurance?

www-mastermortgagebrokersydney-com-au-what-is-lmiLenders Mortgage Insurance (LMI) safeguards the mortgage lender in cases where a home loan borrower defaults on their mortgage loan. The insurance coverage is only necessary for mortgage loans that have a balance that exceeds 80% of the property’s value at the time of application.

Historically, home mortgages were only granted up to and including a maximum of 80% of the loan to value ratio. This resulted in borrowers needing to pay an initial deposit for at least 20% of the purchase price whenever they {|were interested in buying} a house using a mortgage. That was undertaken simply because the smaller loan to value ratio led to a lower risk mortgage loan to the loan provider. In the event of a default, the lending company could claim back then sell the home quickly in a fire sale at a discounted price to recoup their funds.

Yet as the years have passed by, a number of loan providers have made it possible for individuals to borrow in excess of 80% of the home’s value. To cancel out the associated risk, loan providers now acquire insurance cover on the total amount of the loan that goes above 80% of the property’s value. This way, if the home loan gets into default, the mortgage lender will be able to recoup a portion of the debt of the mortgage loan from the insurance provider.

What do Borrowers Know?

Martin North, an independent banking analyst who operates a rolling survey of banking customers recently said that “Around Seventy per cent of homeowners believed that LMI protected them versus the lender.”

“So it is not totally crystal clear to the householder that this actually protects the bank rather than the borrower and personally I think that there needs to be a whole lot better disclosure in regard to this LMI product set.”

How Much is LMI

The premium fees for lenders mortgage insurance can vary widely based on your loan to value ratio and how much you want to borrow. Once the loan you want exceeds 80% of the value of the property you want to purchase LMI kicks in. You may want to try this calculator to see what your LMI fee will be.

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What Happens in the Event of a Foreclosure?

www-mastermortgagebrokersydney-com-au-foreclosureIf the borrower defaults and the bank forecloses, but the sale of the property does not cover the value of the mortgage, then the bank can make a claim under the terms of the majority of lenders mortgage insurance policies.

Peter White, president of the Finance Brokers Association of Australia said; “The insurer pays the bank, so the bank gets out scot-free,”

“But what that loss was — [the insurers] then chase the borrower to recoup their losses. That could be $100,000.”

The Details Are ‘buried in the terms and conditions’ When It Comes To Lenders Mortgage Insurance

“Borrowers were made aware of the risks of lenders mortgage insurance.” In a recent statement, put out by the Australian Bankers Association.

“LMI would typically be discussed with customers when they initially apply for a loan, be included as part of information packs, and discussed again at the final stage when the customer proceeds to purchase,” the statement said.

“The terms and conditions of LMI are included in the loan contract.”

Peter White from the Finance Brokers Association of Australia said, “Intervention is required by the Federal Government to intervene to improve disclosure to ensure borrowers fully understand how lenders mortgage insurance works and what their obligations are.

The policies he said were “buried in the terms and conditions”.

“Make it a regulated document that every banker and every broker must give to the client and the client needs to understand,” he said.

“And if it’s introduced at the beginning of the process it maximises the opportunity of understanding.”

Bio:
About About Dave Fleming

Dave is enthusiastic and fascinated by the digital and social media worlds. He is passionate and enjoys entrepreneurial pursuits, wealth creation financial strategies, health, fitness as well as cooking. Dave is the webmaster at www.mastermortgagebrokersydney.com.au, which is an information website pertaining to loans. He has a deep commitment towards writing about and helping people understand the basics of how the financial world works.