Frequently Asked Questions
1
What is LMI
LMI protects your lender in the event that you default on your home loan and there is a ‘shortfall’. A shortfall happens when the proceeds from the sale of your home are not enough to cover the outstanding amount you owe to your lender. Your lender may be able to recover the shortfall from the LMI provider – but even if they do, it doesn’t mean you’re off the hook. The LMI provider may seek to recover the shortfall amount from you. If LMI is required, you’ll have to pay the insurance premium. But it’s important to remember that LMI doesn’t provide you with any protection even though you pay for it – it’s there for your lender’s protection. If you are finding it difficult to save up a 20% home loan deposit, you may still be able to borrow from a lender to buy a home. However, you may have to pay Lenders Mortgage Insurance (LMI).
2
What is Genuine Savings?
Lenders typically ask for a minimum of 5% of the purchase price. The reason why it is so strict with genuine savings is due to their Lenders Mortgage Insurance (LMI) providers. Loans that are for over 80% of the property value are insured by an external company. This reduces the risk to the lender in the event that clients can’t repay the loan. If a lender has to make a claim on a mortgage insurance policy as a result of a customer not paying their loan, then the mortgage insurer will audit the original approval. If they see that the lender didn’t have evidence of exactly 5% or more in genuine savings when they approved clients’ loan, then they won’t pay the insurance claim.
3
Difference between Redraw & Offset
An offset account is a separate deposit account. Employer can deposit salary into it and Clients can transfer money in from other accounts. They can use their offset account for everyday spending like groceries and bills by using a debit card. A redraw facility is not a separate account but a feature attached to your loan. It allows to draw back additional payments (the amount above scheduled payments) they have made on the loan. A redraw facility may not be as flexible as an offset account. Don't have the option to redraw money from an ATM or transact using a debit card. Some lenders may set minimum redraw amounts.
4
What is meant by LVR?
The LVR or Loan Value Ratio is the amount clients are borrowing against the property value being used as security for the loan, represented as a percentage. Lenders place a large emphasis on the LVR when assessing a loan application. The lower the LVR, the lower the risk is to the bank, hence they are likely to get better rates with a low LVR home loans. Loan to Value Ratio is calculated by dividing the loan amount by the actual purchase price or valuation of the property, then multiplying it by 100
5
What are different types of interest types?
Fixed Interest Rate
A fixed rate loan locks your interest rate for a set period (typically 1–5 years), providing certainty in repayments and easier budgeting. It protects you from rate increases, but may limit savings if rates fall and can incur costs if broken early.
Variable Interest Rate
A variable rate loan changes over time based on lender decisions and market conditions. It offers greater flexibility, allowing features like extra repayments, redraw, and offset accounts, though repayments can increase if rates rise.
6
What is mean by Negative Gearing?
When a residential property investor borrows money from a lender in order to fund an investment property – which is the purchase of a property that will be used as a rental rather than the buyer’s primary residence – it becomes open to a financial strategy called ‘gearing’. If the rental return or the rental income is not substantial enough to cover the total costs of managing the rental and re-paying the interest potion of the loan, the investment property will be ‘negatively geared’. A negatively geared investment property can provide potential tax benefits, when the time comes for the client to lodge their yearly tax return.