Difference in Overall Spend between a Low Deposit Home Loan Vs a 70-80% LVR Home Loan

Riczter on 24/03/2018 - 22:55
Last edited 25/03/2018 - 11:49 by 1 other user

Everyone always says you are better off saving at least 20% of the value of a house when you get a home loan so you don't have to pay LMI and can get a better mortgage rate, and save a heap on interest over the life of your loan. I'm sure this is true but I want to get an idea on exactly how much you actually save using this method. I know there are a million variables, but is anyone able to give me some ballpark figures?

Assume a $500,000 house and $80k salary.

Scenario 1, saved $100,000 deposit and getting a really good interest rate like the one posted recently from Bank of Sydney for 3.63%.

Scenario 2, only saved $10k-20k deposit, what kind or rates are you likely to get and how much of a difference is it going to make in interest spending over the life of the loan after the higher rate and all the extra fees and charges they slug you with along the way?

Financial

Comments

  • JIMB0 on 24/03/2018 - 23:27
    +1

    Scenario 2, only saved $10k-20k deposit

    Don't think you'd be getting a loan at all.

    • Riczter on 24/03/2018 - 23:29

      What about those homestart places that always offer help to get your first home? And all the ads for "Get started with just $1000"? I'm guessing these are the guys that ream you in the long run. I just want to know how badly they ream you.

      • Some Human on 25/03/2018 - 01:36

        I believe that catch with those is that you will never own it.

  • Xetrok on 24/03/2018 - 23:56
    +2

    http://www.homestart.com.au/rates-and-fees
    Low deposit home loans are higher interest rates and probably more strict in terms of lending criteria I would imagine.

    Homestart Variable
    $480000 loan over 30 years at 6.24% =
    Total loan repayments $1,062,836
    Total interest charged $582,836
    repayments $2,953 per month

    ANZ Variable
    $400000 loan over 30 years at 3.84% =
    Total loan repayments $674,262
    Total interest charged $274,262
    repayments $1,873 per month

    You would be better off to have a 90% LVR and pay LMI on a better market offering which for example $50k deposit would be $8640 according to https://www.genworth.com.au/lender/lmi-tools/lmi-premium-est… than take homestart.

    Assume rates will also go up over time so your 6% homestart may end up being 11%.
    Lending criteria was testing repayments on 8-9% for me with ANZ.

    I'm not a financial adviser but yeah, do some research.

  • Riczter on 25/03/2018 - 00:18

    A quick search in finder shows St George offering 3.69% home loan with a 95% LVR which is only a 25k deposit. This seems pretty good? How much is LMI anyway? I'm wondering if its more a matter of it coming down to if you have a good credit history and a bank is willing to offer you a good rate then it doesnt really matter if you have 25k or 100k saved up. Is this true???

    • Xetrok on 25/03/2018 - 00:32

      Except if you open it up further they (profanity) it up https://www.finder.com.au/st-george-basic-home-loan?purpose=… 95% LVR is the max insured LVR where the max loan LVR is 80%

      You really need to speak to a financial planner and mortgage broker.

      You're not digging deeper, looking at terms and conditions, the long term impacts.

      Don't get caught up in something because of FOMO.

      • Riczter on 25/03/2018 - 00:34

        Doesn't that just mean that if you want that rate you have to pay 20% deposit, otherwise if you only have 5% deposit you can still get the rate but have to pay LMI on top?

        • Xetrok on 25/03/2018 - 00:37

          Yeah, but you need to find out who the LMI provider and what the fee will be.

          490960 (475000+15960 LMI) @ 3.64 over 30 years =
          Total loan repayments $807,544
          Total interest charged $316,584
          repayments of $2,244 per month

          400000 @ 3.64 over 30 years =
          Total loan repayments $657,931
          Total interest charged $257,931
          repayments of $1,828 per month

        • Riczter on 25/03/2018 - 00:43

          That's the kind of figures I was looking for, cheers for that.

    • CheapskateQueen on 25/03/2018 - 02:00
      -6

      Wow. Wow. Mate, do yourself a favour and invest some time in learning about homeloans. It's not hard, Google is your friend. And most bank websites have educationals on the basics.

      Wow. Lol.

      • Riczter on 25/03/2018 - 02:17
        +3

        Wow. Wow. Mate, that's precisely what i'm doing. I had a query, did some googling, didn't find the answer, came to ozbargain, and increased my knowledge on homeloans thanks to the people on here that are far more helpful than you.

        Wow. Lol.

  • Riczter on 25/03/2018 - 00:40

    I just did a quick check and it said LMI on a 500,000 home with 475,000 loan would be around 15-17k. So obviously if you only have 25k saved up you wouldnt be able to afford this, so… what happens, can they lump it in with the mortgage?

    • Xetrok on 25/03/2018 - 00:44

      yeah, but then you also have settlement which needs to be accounted for.
      establishment fees, rates, strata, strata reports, pest + bug, conveyancing/lawyer fees which can add another $3-10k on top

    • dcep on 25/03/2018 - 00:48

      yes, it's called LMI capitalisation

      are you 1st home buyer ?

      • Riczter on 25/03/2018 - 00:50

        yep

        • dcep on 25/03/2018 - 00:54

          you get 10k free for buying new home (not 2nd hand)

          https://www.finance.wa.gov.au/cms/uploadedFiles/_State_Reven…?

        • Riczter on 25/03/2018 - 00:56

          Cool, can you use that how you see fit, ie to cover those misc fees that xetrok mentioned above, or does it have to go straight onto the deposit for the loan?

        • dcep on 25/03/2018 - 01:43

          @Riczter:

          you apply the grant through lender/bank, so 10k will be available at settlement as your available fund
          bank can also treat that 10k as deposit during application

          establishment fees, - adjust from settlement fund , no need to pay upfront
          rates, - adjust from settlement fund , no need to pay upfront
          strata, - only applicable to unit/apartment/townhouse, adjust from settlement fund , no need to pay upfront
          strata reports, - only applicable to unit/apartment/townhouse, will form part of legal fees, but comprehensive report isn't useful for newly established hence tell your lawyer don't order comprehensive searches
          pest + bug, - no need for new home, don't go organize for one
          conveyancing/lawyer fees - usually billed after settlement, no need to pay upfront - allow $700+ or so.

        • Riczter on 25/03/2018 - 01:45

          Cheers for the breakdown :)

  • Quantumcat on 25/03/2018 - 07:34

    Something else to consider is the cost of rent while you're saving more money to have a bigger deposit.

    • Quantumcat on 27/03/2018 - 11:16
      +1

      I can't understand why this would be negged?

  • TheBilly on 25/03/2018 - 08:00

    As a first home buyer the exemptions (stamp duty) etc count towrds your available funds in the banks assessment.

  • horsome on 25/03/2018 - 15:38

    Factor in stamp duty and other transfer costs in your calculations. $15k-$20k won’t go very far.

  • dp1 on 25/03/2018 - 15:57

    moneysmart.gov.au has all the calculators you need to compare different interest rates and repayments. Genworth as mentioned above to calculate the cost of LMI. Realestate.com.au also has LMI and stamp duty calculations on the desktop version.
    I'm surprised nobody has yet mentioned refinancing. When your low rate starts to creep higher, as it always does, having <80%LVR makes it easier to refinance, otherwise you will be stuck with your lender which will cost you a lot

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