LMI is insurance that protects lenders from the event that a borrower defaults on their mortgage repayments (i.e. protects against default risk). The LMI policy covers the lender for the portion that the borrower is unable to repay. The cost of the LMI policy is passed on to borrowers with deposits of less than 20% of the purchase price of their property. The lender’s insurer would also need to approve your loan, in addition to the lender.

LMI is either paid for as a lump sum upon the commencement of the loan, or paid for periodically as part of (and addition to) your loan repayments.

LMI payments are generally non-refundable. However, you may be able to claim a partial refund if you pay out your loan in full within 1 – 2 years. The terms and conditions under which a claim can be made and the amount that can be claimed is dependent on the policy of the insurance provider.

If you decide to refinance with another lender and the amount of equity on your property is still less than 20%, you may be required to pay LMI again. This is because LMI policies are specific to each lender and cannot be transferred amongst lenders.In order to avoid paying LMI with a deposit of less than 20%, you would need to obtain a guarantee from a parent or other close family member.

The definition of genuine savings varies from lender to lender, but typically refers to whether 5% of the purchase price has been saved up over a period of 3 to 6 months. Ultimately, the lender wants to know that you have the ability to meet your monthly repayments, and the best way for them to see this is by looking at your savings history.

Not all lenders require you to demonstrate genuine savings. To find out which of the lenders on our panel are applicable, arrange a confidential discussion with us. Alternatively, you could consider a no deposit home loan.

Examples of genuine savings include:

• • Cash held or incrementally saved over at least 3 months.
  • Term deposits held for at least 3 months.
  • Gifts of cash or inheritance that have been held for at least 3 months.
  • Share or managed funds held for at least 3 months.
  • In certain circumstances, rental payments may be used to demonstrate your money management skills. This usually requires rental history of at least 6 months.

Genuine savings do not include:

• • A cash balance sufficient to comprise a deposit of 5% or more, but which has not been held for at least 3 months.
  • An ATO tax refund. (if held for less than 3 months)
  • Proceeds from the sale of assets. (exemptions apply)
  • The First Home Owner Grant (FHOG).
  • Amounts borrowed, such as a personal loan.

Capital gains refer to a situation where you sell a capital asset (in this context, some form of property like a house or an apartment) for an amount in excess of the acquisition cost. Capital gains are included as assessable income when you prepare your tax return, thereby increasing the tax that you need to pay to the ATO.

If the property in question was your residence, you do not need to pay CGT for that period of time. There is also a 6 year CGT exemption where, if you have moved out from the home and rent it out, the property can continue to be exempt from CGT, provided no other property has been treated as your main residence.

Capital gains on investment properties owned by individuals are discounted by 50%, where these have been owned for more than 12 months.

Tax is a complex area – for specific information, we recommend you to speak to a qualified tax accountant

A cooling-off period, in the context of a residential property purchase, allows either the buyer and vendor to change their mind and withdraw from the purchase without significant financial consequences.

For example, in NSW, a buyer withdrawing from the purchase during the cooling-off period would forfeit 0.25% of the purchase price.

The cooling-off period and financial penalty in each state have been listed below:

• • NSW: 5 business days, 0.25% of the purchase price is forfeited
  • VIC: 3 business days, the higher of either $100 or 0.2% of the purchase price is forfeited
  • QLD: 5 business days, up to 0.25% of the purchase price is forfeited
  • WA: Terms are dependent on the individual contract (which means no statutory minimum cooling-off period)
  • TAS: No cooling-off period applicable
  • SA: 2 business days; Any holding deposit paid by the buyer is treated as forfeit in the vendor’s favour, as well as any other deposits less than $100
  • NT: 4 business days; Full refund to be made to the buyer
  • ACT: 5 business days; 0.25% of the purchase price is forfeited

Withdrawing from the contract after the cooling-off period would be a breach of contract, with penalties to follow based on the terms of the contract entered into.

If you want to minimise the risk of gazumping during this time, you can choose to waive the cooling-off period in NSW by filling out a “66W certificate” and giving this to the vendor.

This 66W certificate must:

• • Be signed by your conveyancer or solicitor, and
  • State that your conveyancer or solicitor has explained the effect of the contract, the nature of the certificate and the effect of the certificate.

By filling out this 66W certificate, you will also be locked into the contract. By doing so, you may not allow yourself enough time to discover new defects (especially if a building and pest inspection has not yet been performed), line up your financing and change your mind.

This is the legal process of buying a home, where two identical copies of the contract are signed. One is signed by the vendor and the other is signed by the purchaser. Your solicitor should first review the terms of the contract and brief you on their review before arranging the exchange of contracts.

The deposit (usually 10% of the purchase price) must be paid at the same time in order for the exchange to be valid.If the sale takes place at an auction, exchange of contracts occurs on the same day as the auction and there is no cooling-off period. If the sale has taken place through a private treaty, statutory cooling-off periods apply (e.g. 5 business days in NSW).

Gazumping refers to where your offer via private treaty has been accepted at a specific price, but the vendor has decided to sell the property to another party, usually at a higher price. Whilst potentially seen to be dishonest, gazumping is legal and you will not be compensated for due diligence costs (e.g. building and pest reports, legal fees).

Whilst exchange of contracts gives rise to a legally binding contract, gazumping can also take place during the “cooling-off period”, with no repercussions. You would be repaid any deposit made to secure the exchange of contracts; however, as mentioned previously, there is no obligation for the vendor to compensate you for transaction and due diligence costs.

Minimise your exposure to gazumping by:

• • Organising your pre-approval and savings early on in your property hunt; this ensures that you are able to pay the 10% deposit during the contracts exchange. For assistance in getting your finances in order, reach out to us for a confidential discussion.

Performing the various pre-sale inspections – If your preference is to waive the cooling-off period, you should get these checks sorted before you file the 66W certificate in order to avoid nasty surprises like termites or structural defects.

In a property context, negative gearing arises where tax deductible expenses relating to an investment property are greater than tax assessable income (i.e. being rental income received), thereby giving rise to a tax loss. This tax loss can then be used to offset other income streams, such as a salary received from employment.

The converse situation, where rental income exceeds expenses, is referred to as positive gearing.

Our mortgage related services are free, we get paid a commission by the lender only if the loan is successful.

In most cases you will get the same rate if you had gone to that lender directly. In some cases you would actually get a better offer through brokers, because lenders view us as a wholesale channel. Brokers provide a more personalised service and for no additional cost they will do the leg work for you.