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It’s nice to think that choosing a home loan is all about picking the best rate on the internet and there you are, but, here’s an example of some clever thinking that saved someone – my client – massive money, if you will indulge my little brag post.

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My client wants to increase his loan – he’d like to extend his home and ideally he’d like a little bit extra for finishing touches like rendering the original building and blinds and the other niceties. We where the only mortgage brokers Sydney for the job.
The whole project hinged on getting a valuer to agree with what we thought the finished product would be worth, this is an art in itself as valuation firms vary widely in their conservatism or the properties they pick to compare yours too.
We had tried with one lender where we usually get great valuations and no luck.
We come in and try with a second lender – and a second valuer – and we’re in business. In fact the valuation came back a little higher than we expected.

First lesson learnt – the right loan comes with all of the tools to get the job done! Having a choice of lenders at my disposal I knew which ones were coming in OK with valuations and who seems to have the more conservative firms on board at present, and it changes rapidly.

So now we are in business but the lender’s mortgage insurance is a factor. Lenders mortgage insurance is a cost for borrowing more than 80% of the property value, and a lot of us must use this “tool” to get the home we want rather than waiting and saving. Mortgage insurance varies from lender to lender and increases with the more you borrow both as a loan amount and as a percentage of the value of your property. Knowing about mortgage insurance “price bands” helps a lot.
In this case, the borrower had already paid mortgage insurance once with this lender; therefore keeping him here means he only pays on the “top up” amount – which can be a huge saving in itself. Because he’d paid some of his loan off and the property had increased in value he dropped down a “band” and the existing premium he’d already paid would cover his increase for the build – but the “extra money” we wanted for finishings pushed him up to a $7500 lenders mortgage insurance bill.
So in this case, borrow an extra $10,000 and your insurance was almost as much again (it does get added on top so he does end up with the extra dough but it still has to be borrowed). Here’s where some lateral thinking comes in – if he increased by x but not more than y his increase would be covered under the original policy too – so what’s the magical number that kept us under the original cover? $9,000 instead of $10,000. Drop back one thousand dollars borrowings to save more than $7,500 in fee. He can go without blinds on two windows, go with cheaper blinds all over, or really negotiate well for the same blinds because he has an exact figure he can’t go over, and the cost of doing so is $7500!!!
And there’s no way you’re going to know how to do this, so you may walk away without the money, or you may just pay the extra.

So second lesson learnt – it’s boring stuff but really knowing mortgages inside and out can make a massive difference for very little effort! (Get a professional people!)

Everything else about the loan was competitive, it will cost him no more than any other loan on the market so all things being equal this is, right now, the cheapest home loan for this customer. And I know he will review it in 2 years to make sure it stays sydney’s cheapest home loan!

One final point: I get paid to move these things around. Keeping it with the same lender – and this one arrangement pays much less than anyone else – means I don’t get paid as much however it’s the right solution for the client. I’d like to see that on the news “Broker takes pay cut because it’s the right thing for the customer”, you know – why – because doing the right thing for my customers is what I do every day.

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