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Mortgage Broker Jargon

Deposit Bonds

Deposit Bonds are used instead of cash deposits by purchasers on exchanging contracts, these bonds can be purchased for periods up to 18 months depending on the amount.The cost of the bonds vary according to the amount and length of time it is to be used. It is an advantage to have them at auctions or for off the plan purchases. As a mortgage broker we are able to process the application and arrange the bonds for you. Two types of deposit bonds are available. The first one requires a loan in principle to be approved for the applicants by a lender prior to getting approval for the bond. The second type does not require pre-purchase loan approval, but the premiums tend to be higher but the process to obtain the bond is fast.

Equity

Take Advantage of the Equity in your home. The benefits of gearing can only be achieved:

  • By reducing your loan quickly, using any surplus weekly income and by using offset account for regular income.
  • Using your negative gearing benefits on the investment property to reduce your loan.
The benefits can be obtained if the individual is, say, on high marginal tax rate. Then if there is full deductibility of interest payments they may then use the tax saved to make lump sum loan repayments using the tax refund cheque.Doing this will cause the loan repayment period to reduce dramatically. In our view negative gearing has questionable tax benefits for those on average income as income tax rates have come down. Property investment should be part of an overall investment strategy.

Loan Mortgage Insurance (LMI)

The Loan Mortgage Insurance percentage is applied to the whole property loan and charged only once for the loan.The insurance covers the lenders risk to the loan in the event that the borrower defaults and the property has to be repossessed and sold. Any shortfall is covered by the insurer.

Once the loan exceeds 80%, Loan Mortgage Insurance (LMI) is required. For example for loans up to $300,000, the borrower pays between 0.5% at LVR of 81% to 1.62% for LVR of 95%.

For loans in excess of this amount to $500,000, the mortgage insurance will vary between 0.6% at LVR of 81% to 2.60% at LVR of 95%

If the loans exceed $500,000 and the LVR exceeds 80% it becomes increasingly difficult to obtain mortgage insurance. The insurer will assess each case and they may decide on the premium based on the strength of the overall application.

Commercial properties have a maximum LVR of 75% up to $1,000,000, 70% between $1- $2,000,000, 66% between $2 - $5,000,000. It is not possible to obtain Loan Mortgage Insurance for commercial properties. Residential properties used for commercial purposes can go up to 80%.

Loan Value Ratio (LVR)

This is the ratio of loan to the value of the property. Generally this ratio on residential property can go as high as 95% and up to 90% for investment.

Negative Gearing

If you want negative gearing calculations done, contact us with your proposed purchase & income details.

Disclaimer: The information contained herein is for the benefits of Sydney Mortgage plus Pty Ltd clients. However your future financial situation and interest rate movements can affect the strategy, therefore you must obtain independent financial advice. This company takes no responsibility or accepts liability for any adverse outcome as a result of using these methods. Terms, conditions, fees and charges apply to each of these loans, for further details contact Samuel Chacko.