Lowest LEP (Loan Equity Premium) or similar - Who?

[Learning Landlord]

We have been looking at different banks and the way they loan over 80% finance (residential investor scenario).

Some are increasing the interest rate. For example they will add 0.5% from 81% - 85%, then up that to 0.75% on top of floating rate for 86% -89% etc. So if you borrow 85% you pay floating rate of 6.10% + 0.50% = 6.6%, for example.

Other banks work out a % on the total money borrowed, and add a one time % fee figure. Eg we borrow $300,000, a bank charges say, 1.5% of that =$4500 extra. This can be capitalised so you borrow $304,500 (Dont quote me on that last % increase of 1.5%).

What have people found to be the best "over 80%" deal out there?

Any particular lending places, banks, deals etc?

I think this would make an interesting thread as the deals offered by businesses that lend over 80% are very different.

Any thoughts?

[Learning Landlord]

PS 'Roseneath Rat' if you are online these days - you may have some interesting input on this??

[AMR]

Would this help?

http://www.squirrel.co.nz/first-home-buyers-low-equity-fee/

[Learning Landlord]

Now THAT response was fast! Thanks v much. Any other experiences from people who have been through this?

[roseneath_rat]

Hey there LL, yes I've been a bit quiet around here lately ... lurking but not posting much.

Yes as the Squirrel site points out different lenders approach it in different ways. Lenders like Westpac or Kiwibank by example tend to load a premium on the interest rate, in a tiered level depending on Loan to Value Ratios. This may be 0.15% - 0.50% depending on the actual LVR and loan size and whether there are other mitigating factors involved. Others like National Bank tend to charge a one off low-equity premium and add it to the loan.

The loading to the interest rate works well in a few circustances, eg- when the borrowing is of short duration (like bridging finance), renovation (where the post-reno increase in value exceeds what was spent on the work) and in strong rising markets (property revalued after a year & fits normal criteria). It also provides an incentive to pay down the loan more quickly to avoid the premium rate. Some will structure the loan so that the first 75/80% pays down over a normal term, say 20+ years or even interest-only, with the higher portion rapidly amortising over say 5 years.

The one-off fee option works if it is a long term hold & stagnant market. It was originally based around lenders that took external Lenders Mortgage Insurance (LMI) contracts out to protect them from loss in the event of default. The insurer would charge a premium based on the assessed risk, but typically a simple formula based on loan size and LVR.

[Learning Landlord]

Thanks RR, in this case I think a one time fee added and capitalised to the loan would be beneficial. Stagnant market (ish), more cash flow as the LEP is over a long term (20+ years), and a slow B and H property as opposed to a quick flick.

Nice to see you around, thanks for the words.

[NovInvestor]

AMP charges some $27000 LEP for your first 4 properties all at 95% lending.

[WGN ex-property manager]

AMP charges some $27000 LEP for your first 4 properties all at 95% lending.

Does it matter how expensive the properties were?

Is that each property, or for all 4?

[AMR]

I think it's around 2%.

I was asked for $4k+ for a property in the mid 200s.

[roseneath_rat]

LEP is based on loan size & LVR rather than property value.

[WGN ex-property manager]

LEP is based on loan size & LVR rather than property value.

That's what I was expecting

[mortgage broker]

In most cases ASB is the cheapest when it comes to a 5% deposit. They have recently gotten back into the low deposit space. And their criteria looks pretty good.

[WGN ex-property manager]

Presumably this is for PPOR.

Who's looking good for low deposit IP's (if anyone?)