Mortgage Broker – Established Residential Investment & Home Loan Specialist

80 Percent Home Loan - Refinance to a Lower Interest Rate

80 Percent Home Loan

 

Hello, Nathan here and welcome to my 80 Percent Home Loan webpage. So what does an 80 Percent Home Loan mean and why is this a magical percentage when taking about finance? Firstly, 80 Percent Home Loan refers to the amount of loan compared to the value of the property times by 100 to give you the percentage. This is what’s know as the Loan to Value Ratio or LVR. For example:

  • Home Loan Amount = $400,000
  • Property Valuation or Purchase Price = $500,000
  • $400,000 ÷ $500,000 = 0.80 × 100 = 80% LVR

If you are seeking an 80% Home Loan or wish to refinance to an 80 Percent Home Loan, please head to my Contact Us page for my details.

80 Percent Home Loan – History

Up until 1965 you couldn’t buy a property in Australia unless if you had a 20% deposit plus the associated fees like Stamp Duty, Loan Set Up costs and Settlement Agent/Conveyancer fees, which amounts to about 5%, so effectively you needed to have a 25% deposit to buy a Home or an Investment Property in Australia.

With the introduction of Lender’s Mortgage Insurance (LMI), this allowed the Australian Consumer, in particular First Home Buyers, the ability to purchase a Home with less than a 20% deposit. So if you only had a 10% deposit and enough funds to cover the fees and charges associated with the purchase of the property you were now able to apply for a 90% LVR Home Loan. The Bank would take out Lender’s Mortgage Insurance, which covered them if the property had to be sold due to a defaulting borrower. If the funds remaining after any selling costs was less than the amount owing, plus any default fees and charges, then the Bank would claim the difference from the LMI provider.

Interestingly it is you, the borrower, who pays for the Banks LMI premium, normally added on top of the Home Loan amount. So hang on, you pay for the Insurance that the Bank claims if they make a loss and guess what, the LMI provider has the right to chase you down for the loss! In my opinion this is the most grotesque type of Insurance that you pay for but do not receive any benefit, although…

The benefit of paying the Bank’s LMI premium is the fact that you have been able to get into your own property without having to come up with a 20% deposit plus the additional 5% in the estimated purchasing fees and charges. Having to continually save more and more of a deposit, especially if house prices are continually rising may result in you being unable to buy a property without LMI. And if you do buy a property with LMI there are many Banks who will charge you a higher Interest Rate because your greater than 80 Percent Home Loan amount is considered risky.

80 Percent Home Loan – Benefits

As you may have gathered by now there are multiple benefits of having an 80 Percent Home Loan, or less than 80 Percent Home Loan because you can:

  • Avoid paying Lender’s Mortgage Insurance premiums
  • Avoid paying the Home Loan Interest charged on the LMI premiums that have been added on top of your Home Loan amount
  • Obtain a lower Interest Rate
  • Makes it easier to obtain finance becasue you do not require LMI approval
  • Your offer on a property is perceived as being ‘stronger’ if you are only seeking an 80 Percent Home Loan

80 Percent Home Loan – Refinance

If you have a current loan that required you to pay LMI you may be on a higher interest rate compared to someone who has an 80 Percent Home Loan. So the goal if you are in this position is to maximise your debt reduction as quickly as possible so that you can refinance to a lower interest rate. The sooner you can do this, the quicker you will be able to potentially save thousands in Bank Interest (Bank Profits!).

When refinancing we are beholden to the valuation, which many people think that a Bank Valuation is always lower than a Real Estate Agents Valuation and you would be correct for a very good reason. The definition of property valuation conducted by a Bank or a company on behalf of the Bank is:

  • What is this property worth if it was sold at action today, in its current condition, without it being passed in, meaning it didn’t reach the sellers reserve price?

Compared to a Real Estate Agent’s valuation estimate that would include recommendations like:

  • Filling some cracks in the cornice
  • Touching up any flaking or fading paint
  • Total garden tidy up including mulching the gardens
  • Removing some furniture to make the living areas more spacious
  • Get a professional photographer in to take pictures of the property in the perfect light before advertising on multiple platforms
  • Etc.

You can now appreciate why a Bank may value your home lower than a Real Estate Agent. So before refinancing to an 80 Percent Home Loan we need to tidy up your property to obtain the best valuation that we can achieve. Your goal is to reduce your current amount owing, which will create more equity if property prices are rising but also protect your equity if property prices are falling.

Paying off your Home Loan debt faster than the Banks want to see you achieve is a great way to save thousands in bank interest and potentially years off your loan term and something I highly recommend so long as you are not using higher interest rate debt facilities, like Credit Cards, to fund your lifestyle.

80 Percent Home Loan – Next Step

If you believe you have enough deposit or equity in your current property that will allow you to apply for an 80 Percent Home Loan, I recommend that you contact your local Mortgage Broker to compare your current interest rates to other lenders in the market place. If refinancing your Mortgage Broker will be able to inform you if there are any material benefits, like interest savings and/or they may have options to a better product, for example one that doesn’t have a monthly or annual fee that could also save you thousands over the life of the loan.

Regardless of which lender you end up using to secure your 80 Percent Home Loan you will need to collect some documentation, which you can CLICK HERE for a copy of my generic list.

If you are unsure of the details provided above and want to ask some questions, feel free to go to my Contact Us page and send me an email.

Best wishes with your endeavours to get your 80 Percent Home Loan.

 

Nathan Daniell
Managing Director / Mortgage Broker
Simplify Your Mortgage Pty Ltd
Australian Credit License Number: 387974
M: 0413 615 913
E: support@sym.net.au

P.S. Thanks again for visiting my 80 Percent Home Loan webpage, which I hope has been informative and allows you to make a more informed decision.

, , , , , , , , , , , , , , , , , , , , , , , , , , , , ,