Q: I have heard that I can get my mortgage insurance back from my lender if I repay my home loan within 2 years. Does this mean I could just switch lenders and get my $7,800 that I paid back?
A: It is important for borrowers to understand that Lenders Mortgage Insurance covers and protects the lender should a borrower default on their loan. It does not cover the borrower. Other forms of insurance such as life and mortgage protection insurance are available to borrowers, which can protect a borrower against loss of income due to illness or loss of employment. Lenders Mortgage Insurance is payable by the borrower in a single premium charged at settlement. In most cases it is only payable when the loan to valuation ratio exceeds 80%. The premium is calculated on a sliding scale so the higher the loan to valuation ratio the higher the premium. A partial refund of the premium may be payable if the loan is paid out early. The two major mortgage insurers will refund up to 40% of the insurance premium if the loan is paid out in the first year and one of them will refund up to 20% of the premium if the loan is paid out within two years. Therefore to switch to another lender only a partial refund of the lenders mortgage insurance premium may be available. The increase in value of the security property and the equity built up in the property would be important factors to consider in switching to another lender as lenders mortgage insurance may apply with the new lender. The costs and fees in refinancing would need to be taken into consideration to ensure the proposal is viable.
Q: How do construction loans work and who qualifies for them? My wife and I are 26 and recently bought our first home, an original post-war, and want to renovate.
A: Construction loans for the purpose of building your own home or renovating an existing home are available to home buyers under similar terms and conditions that would apply to a homebuyer purchasing an existing home. The main difference is how the loan is drawn. In purchasing an existing home the loan is usually drawn in one lump sum at settlement. A construction loan is usually drawn by progress payments as the building is constructed and reaches certain stages, which would be detailed in the building contract. Home renovation loans can be done with a simple extension on an existing home loan or by a separate loan. It would depend on the value and type of renovations on how the loan would proceed. If you have a good equity in your property, the cost of the renovations are small and did not require council approval the lender may make the loan funds available in one lump sum. Should the renovations be major the loan may need to be made available as a construction loan with progress payments payable as stages of the renovations are completed. The renovations would need to be fully costed with firm quotes, or building contracts and council approved plans where necessary. Should a revaluation of your property be required the lender will have the property valued taking into consideration the current value of the home plus the cost of the renovations. This is referred to as a tentative on completion valuation, which is the standard process in building a home. The State Government’s Building Services Authority (BSA) has an information booklet called “Facts for Home Builders & Renovators” which you may find of assistance with your home renovations. Copies of the booklet can be obtained by contacting the BSA on 1300 272 272 or through website www.bsa.qld.gov.au.
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