Low Equity Fees – What Are They?
Lenders will now finance up to 95% of a property’s value. Therefore, if your contribution to the Purchase Price is less than 15%, you will have to pay either a Low Equity Fee or a Margin on your Interest Rate, as part of the cost of financing the Purchase.
The Lender is taking a significant risk on the financing of the house and the security available is not sufficient for the standard risk assessment process.
The Lender will seek a greater return for their increased risk or they may re-insure their risk with a Mortgage Insurer. The Insurance cover received is Lenders mortgage insurance and has absolutely no benefit to the borrower.
When the Lender re-insures their risk, the Mortgage Insurer then has the power to decline a loan application.
Until around 1988, it was not possible to borrow more
than 80 % of a property’s value. It was only through the availability of Mortgage Insurance that Lenders were able to offer greater flexibility to 1st Home Buyers.
A Lender will generally require additional information in relation to your savings history and your current employment. There may also be some restrictions on the type of property being purchased.
The best way to answer all these questions and achieve
a number of other goals is to obtain a Pre-Approval.