How much interest do you think you would pay on $17,000 over the course of a 30 yr loan?
Neil and Paula decided to purchase the house they had been renting for a few years. They managed to secure the property for a really good price ($100,000 less than market value) as they had made some improvements to the property and they knew the owner.
They had $80,000 for their deposit which equated to a 10% of the loan amount. If you want to borrow more than 80% of the value of the property, then the banks require you to pay a premium called Lenders Mortgage Insurance (LMI). This premium is designed to protect the bank against any risk if the property value comes down and the loan is defaulted on.
The premium that Neil & Paula would have to pay if they wanted to borrow 90% of the purchase price was almost $17,000. We realised though, that as they brought the property for $100,000 less than it's value, this existing equity along with their deposit totalling $180,000, meant that the loan to value ratio was reduced to 80% and technically the banks risk was already covered.
I knew it was a long shot but I spent an entire day calling all the lenders to see if we could use the value of the property instead of the purchase price when the LMI was being assessed. Unfortunately they all refused, insisting that they had to use the purchase price. I then started to call everyone I knew in the industry to see if they had an answer, once again everyone said it would not be possible.
My clients insisted that logic and fairness should prevail, and there had to be a way, so we confirmed the property value with an independent bank valuation and I kept trying.
I exhausted all avenues of enquiry and finally my hard work totalling an extra 22 hours of research and negotiations finally found a lender to see sense. We got the loan through using the value of the property and not the purchase price. My client didn’t have to pay a cent in mortgage insurance and now has an extra $17,000 in their pocket that they would otherwise have had to pay.
If that $17,000 had been added to their loan then that would equate to about an extra $30,000 in additional interest over a 30yr loan term. So in total they actually saved approximately $47,000. What a result!
Who’s the next person you know who would like to save as much money as they can on their next mortgage.
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