 Home loan specialist Vicky Edema
Answer your home loan questions...
Our Managing Director, Vicky Edema, is a past State and National President of the MFAA (formerly MIAA). Vicky’s experience in the mortgage industry is second to none. This month Vicky answers questions on the following topics:
1. Buying units
2. Flexible fixed rate loans
3. Mortgage insurance refund
This month's Your Mortgage Magazine "Ask Vicky"
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| Buying units |
 A bank has declined my request to use the equity in an investment property as a deposit on a home loan, The reason is the investment property is only 30m2, below the 50m2 threshold. Is this a policy held by all lenders?
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 Lenders are often reluctant to finance studio apartments and those smaller than 50m2 in inner-city locations or city-fringe areas. The abundance of apartments in these areas can cause prices to stagnate or even drop if supply increases and/or demand falls, making these purchases riskier, for example, than established homes on blocks of land. Lending institutions may themselves be denied lenders mortgage insurance (LMI), which protects lenders in the event that a borrower defaults on their loan and the sale of the property isn't enough to cover the debt. Mortgage insurers are often reluctant to insure lenders on properties less than 50m2 so this makes lenders reluctant to lend money to borrowers for such non-insurable properties. Both St.George and CBA will consider lending against inner city units that are less than 50m2. They have specific criteria in relation to these smaller properties so your best bet is to call your broker for loan parameters to ascertain whether your unit will be acceptable security to either lender.
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| Flexible fixed rate loans |
| Could you give me a list of lenders that will offer fixed interest rate loans on which you can make extra payments? We currently pay more than the minimum amount due, and are keen to keep this up for another few years. |
Fixed rate loans suit borrowers who like the security of knowing how much their repayments will be, as fixed rates insulate them from higher repayments if interest rates rise during the term of the loan, It's easier to budget for as repayments won't fluctuate, However, fixed loans are generally less flexible compared to variable rate loans, Some fixed rate loans offered by banks, for example, won't allow you to make extra repayments, while some lenders limit the dollar amount that you can repay over the life of the loan, Some lenders might charge you when you repay extra but this is generally not the case. The Home Loan and Investment Loan tables at the back of each issue of Your Mortgage detail which lenders allow you to make extra repayments on fixed loans and any limits. Loan conditions and fees vary greatly between lenders so it pays to shop around. You also need to check with lenders whether there are any break costs involved if you decide to pay off your fixed loan in a lump sum or refinance to a new loan. Break costs, or exit costs as they are also known, can be substantial compared to variable rate mortgages, so ask about them.
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| Mortgage insurance refund |
l've heard that borrowers can get refunds of mortgage insurance if they refinance or pay out their mortgage within the first two years. Is this true? I'm thinking of refinancing and am wondering how to claim a refund and from whom I can claim it?
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Lenders mortgage insurance (LMI) protects the lender (not the borrower) in the event that the borrower fails to make repayments on their loan. The one-off premium paid when the loan is taken out (which may run into thousands of dollars) covers the life of the loan. Obviously, if a borrower refinances without having defaulted on their loan, the mortgage insurer is no longer liable for a payout on that loan.
Where the borrower has not defaulted on their loan, most mortgage insurers will refund 40-50% of the mortgage insurance premium to borrowers who repay their loan within the first 12 months of its term. This is done either directly or indirectly through the lender. Refunds of LMI generally aren't paid once the loan has run for more than 12 months.
Borrowers should clarify their lender's policy on refunding mortgage insurance, The refund is usually automatic and is initiated by the lender as part of the loan settlement process. Once the property is sold or the loan repaid, mortgage insurance is refunded within 30 days of the loan being paid out. |
Is there anything you would like to Ask Vicky?
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