Archives for May 2009

What is Lenders Mortgage Insurance? Lenders Mortgage Insurance was first introduced into Australia by the Australian Government back in 1965 as a way to assist buyers to obtain their home without saving up the traditional 20% deposit. What LMI does is allows the banks to offer the same loan, at the same rates and fees to those with a lesser deposit, but with the payment of the LMI premium. If you turned up to the bank and asked for $300,000 they wouldn’t give it to you unless you were putting something up as security.  The security you can offer them is your home or investment property – the idea being that if you don’t pay back the $300,000 then the bank is entitled to take possession of your property, sell it and recover their money. It is for this reason that banks want a 20% deposit.  If they ever do have to take possession and sell there is a 20%… Read More

Beware of Introductory or “Honeymoon” Interest Rates Offers: I recently saw a bank advertising a fixed rate of 2.99%. No other details. Simply titled; “How does a 2.99% fixed rate loan sound?” This prompted me to follow up on my post in March on Comparison Rates and advise on what is, in my experience, normally a trap. What are introductory rates? An introductory rate is one where typically the rate is cheaper for the first year or two of the loan term.  Once the honeymoon period is over the interest rate will rise. Why should I avoid Honeymoon rates? All banks have to pay their shareholders or members and therefore, if they are not making money off you in the first year (the honeymoon year) then they need to make their money off you in the following years.  To ensure they do this, once the initial honeymoon period is up the interest rate will rise considerably (normally over and above… Read More