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The basic formula for obtaining a mortgage used to be totally dependent on the level of the client's deposit. In
the recent past, a lender required intending purchasers to contribute a minimum 20% deposit. This rule has
been relaxed and some banks may provide lending up to 100% depending on the circumstances. Other
factors such as: the loan servicing ability of the client against their fixed commitments; stability of the client's
earnings; their credit record; and the situation and state of the property asset need to be considered.
Traditionally lenders required borrowers to pay a substantial deposit for two reasons:
According to Peter Tilley of STEP Financial Services, the basic formula for obtaining a mortgage still places a
good deal of weight on the amount of the client's deposit, however it is no longer the most important factor.
If the borrowing is over 80% of the property value it will attract a low equity fee (LEF or LMI). The fee is used to
insure the risk for 20% of the loan and can be capitalised or added to the loan over the loan term. This is a one
off premium and the cost varies from bank to bank.. It is calculated on a percentage basis against the amount
of the loan.
When assessing the client’s ability to service the loan, historically the rule of thumb was that the ratio against
fixed commitments could be no more than 30% of gross income. This has now been varied and some lenders
look at the actual cash surplus which will be left after paying fixed costs (e.g. HP, rates, insurance, etc) and
general living expenses (food, phone, electricity, transport expenses, etc).
An acceptable credit record is one of a number of issues which can impact on a client’s ability to obtain a
mortgage. Lenders will take a strong stance if a credit record is unsatisfactory and this will have a substantial
bearing on the consideration of any application.
Disclaimer: The information and views contained in this article are not necessarily the view of AMP or STEP
Financial Services*. The information included is of a general nature and is not a substitute for financial or other
professional advice.
* Coastal Financial Planning Limited trading as STEP Financial Services.
the recent past, a lender required intending purchasers to contribute a minimum 20% deposit. This rule has
been relaxed and some banks may provide lending up to 100% depending on the circumstances. Other
factors such as: the loan servicing ability of the client against their fixed commitments; stability of the client's
earnings; their credit record; and the situation and state of the property asset need to be considered.
Traditionally lenders required borrowers to pay a substantial deposit for two reasons:
- It showed that you were committed to the property, if something went wrong you had something tangible
to loose; - If it came to a mortgagee sale, the deposit would go some way towards covering any shortfall between
the amount recovered and the loan amount.
According to Peter Tilley of STEP Financial Services, the basic formula for obtaining a mortgage still places a
good deal of weight on the amount of the client's deposit, however it is no longer the most important factor.
If the borrowing is over 80% of the property value it will attract a low equity fee (LEF or LMI). The fee is used to
insure the risk for 20% of the loan and can be capitalised or added to the loan over the loan term. This is a one
off premium and the cost varies from bank to bank.. It is calculated on a percentage basis against the amount
of the loan.
When assessing the client’s ability to service the loan, historically the rule of thumb was that the ratio against
fixed commitments could be no more than 30% of gross income. This has now been varied and some lenders
look at the actual cash surplus which will be left after paying fixed costs (e.g. HP, rates, insurance, etc) and
general living expenses (food, phone, electricity, transport expenses, etc).
An acceptable credit record is one of a number of issues which can impact on a client’s ability to obtain a
mortgage. Lenders will take a strong stance if a credit record is unsatisfactory and this will have a substantial
bearing on the consideration of any application.
Disclaimer: The information and views contained in this article are not necessarily the view of AMP or STEP
Financial Services*. The information included is of a general nature and is not a substitute for financial or other
professional advice.
* Coastal Financial Planning Limited trading as STEP Financial Services.
| How Do You Qualify for a Property Loan? |
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| PO BOX 9018, Wellington 6141 | phone: (04) 240-0124 | fax: (04) 232-4414 | email: valuer@ vcnz.co.nz Innovation + Experience |
Low Equity Fees - What would you expect to pay?
The reality is that it varies from bank to bank, but the following are indicative.
We have been made aware of one 'shonky' lender stitching up clients on Low Equity Insurance fees. Their
process was to wait until the last minute before settlement and then introduce an excessive Low Equity fee.
Generally this had not been discussed earlier in the process but introduced when the buyer was in a position of
having to accept the lenders 11th hour proposal or loose out on the purchase.
The low equity fee should not be substantially different from those indicated. The low equity fee is a one off
payment and most lenders will add the fee to the loan.
We have been made aware of one 'shonky' lender stitching up clients on Low Equity Insurance fees. Their
process was to wait until the last minute before settlement and then introduce an excessive Low Equity fee.
Generally this had not been discussed earlier in the process but introduced when the buyer was in a position of
having to accept the lenders 11th hour proposal or loose out on the purchase.
The low equity fee should not be substantially different from those indicated. The low equity fee is a one off
payment and most lenders will add the fee to the loan.
| Low Equity Premium is charged by the lender on the portion of the loan exceeding 80% of the property value. LVR LEP % of the loan amount 80 - 80.99% 0.002 81 - 82.99% 0.003 83 - 84.99% 0.004 85 - 86.99% 0.005 87 - 88.99% 0.006 89 - 89.99% 0.007 90 - 92.99% 0.009 93 - 95.00% 1.00% Over 95% 1.25% For example, if you borrow $300,000 and this is 88% of the total property value, then the Low Equity Premium would be $1,800 (0.006 x $300,000). |
Innovation + Experience |