Top Up Mortgage Costs

[tarn]

We are applying for a top up on an existing loan - for construction of houses. The lender wants $2500 establishment fee, an interest rate of 9.45% IO and Lenders Mortgage Insurance of $3149.00. The loan is low doc 70, so we are surprised at the insurance charge. Is this the going rate?

Because it is construction, there don't seem to be too many lenders wanting to take it on. Any suggestions?

[sarahd]

Are you doing the building yourself or is it a company doing it for you?

[Monkeyboy]

There are much cheaper options out there. It depends on what you are wanting and what you have told the lender. A lo-Doc always has extra fees involved and yes it does have an LMI atached. More details need to be given to give you complete advice.

[tarn]

We have a fixed price contract from a local builder. There is an existing house on a large section. We already have a mortgage on the house and land - which is being subdivided into three titles. We are applying to top up the existing mortgage to include the building costs of the two houses on the new sections being created.

The application fee is .5% of the top up and they want to take LMI (which we didn't have on the first mortgage) over both of the mortgages now. I guess it is all negotiable, but it would be easier to stay with the same crowd. We will have to pay early release if we move.

We think there is enough risk margin in the 9.45% interest rate - they are only lending 70%!!

[krispedersen]

The interest rate may be a bit higher than you are used to if they have suggested either a line of credit or a variable rate. Both of which are common throughout the construction process. You should be able to reduce this once construction is finished to a fixed rate of your choice.

However as Mike said there are cheaper overall options available

[Monkeyboy]

Are you going through a broker or setting this up yourself, if using a broker have they been through this process before to be able to give you all the options and not just the easiest ones or even the most beneficial ones.
It is not just the construction process that lenders are concerned about but the Lo-Doc 70% LVR combined with construction where the issue is. If it is the lender i think it is then there are other options to consider. You may be able to load the interest rate to cover the LMI. Lo- Doc always incurs an LMI charge - risk factor. Once construction is finished and you refinance you may be able to get much better rates.

[tarn]

We did go through a broker initially. He set up the original deal. He also set up a mortgage with another lender on other properties and this is where we had issues. Needless to say, we are a bit shy of brokers this time around. It is a hassle doing it all ourselves, but at least we know from day one what the costs are going to be and there are no surprises.

Thanks for the feedback - it sounds like a pretty reasonable deal. We will be having a hard look at the lending once the houses are built.

Keep up the good work!! It is all appreciated.

[Monkeyboy]

Try not to get to shy of brokers as they can be the ones to help you to move forward. It isn't just the hassle factor doing it yourselves, but a good broker will give you all the options. Look to speak to one that invests themselves. That way they have the knowledge that can help you and not hinder you.