Sunday, November 21, 2010

Settlement is coming

After buying our block of land in January we will finally own it on Friday. We've been talking over the last week about whether or not we should delay the build until after we sell our curent house because we have to borrow more than 80% of the cost and the bank wants to charge us around $19,000 in mortgage insurance.

The bank will only value our land at what we paid for it back in January despite the fact that you try and buy a block of similar size to ours on the estate now, you'd be paying at least $50k more. And to add insult to injury they are only valuing our build at $30k less than what it is costing us. The problem is they don't look at the plans they base the entire assessment on the price per square meter for a built house in the same suburb have been going for recently. That's despite the fact that there are many houses bigger and more expensive than ours being built in the same estate now. No wonder these pricks made $5 billion profit this year.

So the bank wants me to pay insurance for them in the event that I renege on the loan and the house is worth less than what is owed on it they can claim on that insurance.  Not me - I can't claim, even though I'm paying for it.  How does that work?  Never mind that since I bought my first home in 1982 I have never been late on a payment, not once.

What a rort. I understand why the bank needs to protect themselves but why do I have to pay a premium for insurance when in three months time I'd be under the limit anyway? Any bankers out there please explain.

Anyway - delaying the build would mean we'll have to rent somewhere, which means moving twice and probably also having to put stuff in storage. We'd have to find a place that would let us bring our dogs and it's just too much of a friggin pain in the arse to go that way. So we'll pay the bloody insurance and get the place built so we can move in and enjoy it.

On a much more pleasant note, thanks to the wonders of the internet, we have met a number of our new neighbours already and we're both really looking forward to moving into the area and putting down new roots.

My lady is keeping the entire house building saga up to date on her blog Destination 3977 so please feel free to pop in and say hello.


Andrew said...

It is a good bit of effort but what about going to one of the smaller banks and laying your cards on table, so to speak. While we have been with a big bank for many years, I would never have been able to buy my first place if it wasn't for a building society. I have no experience with Bendigo Bank, but they sound ok. Aren't you still a member of your old work place credit union?

But given your record with your bank, I think you need to be a bit aggressive and go above the lowly clerk. They are treating a good long term customer badly. Hey, no surprise about that from a big bank.

Loz said...

I have enquired with the Bendigo Bank and whilst they have put the value at $20k more than the Commonwealth it still doesn't get us close to that magical figure.

Nope - I left that credit co-op some time back, although I could rejoin as an ex-member.

The issue now is that we need it all in place in the next two weeks if we are to start pre-Christmas and the problem is that when we first applied way back in January, none of this was raised with us at the time.

steviewren said...

Sorry about your funding woes. The odds are always stacked in the interest of the bank...the regular guy rarely catches a break.

I read your Dad joke post....sorry you've got the syndrome...the good news is you're a dad so your family loves you anyway....: )

Thanks for visiting my blog!

Katie said...

Thank you for becoming my 101! Yay.
Gonna spend some time here reading through.

Thanks again!

Anonymous said...

Well I am an ex Bankie Laurie and do understand what they are doing. The mortgage insurance you will have to wear if you borrow more than 80%.

This is something I always try to explain to people in borrowing for their home. I (honestly) believe people can find themselves in trouble if they borrow more than 80%. Yes, in your case it's a bit different in that it's only bridging finance but still this rule is a standard one. A penalty you will have to pay to save the disadvantage of a double move.

The valuation... yep... that's a bit of a shame. Even if you had it valued by an independant valuer it still may not come up to the figure you need. Valuations are always very conservative for the Banks.. have to be... protection I suppose you could say if real estate falls in a hole.

Can I put it to you another way?

Think about a lot of young people looking to buy a property... Yes, excellent they are wanting to do that, but truly so many come unstuck when they borrow more than 80%. They struggle and often lose their homes.

The best advice I will always give anyone is to save, save, save, and make sure they have that 20% deposit. It can be done. And to enter the market then they should never have a problem with losing value in their homes or worse case scenario losing their homes.

That 20% equity in the start is possibly the best investment they ever make.


LL Cool Joe said...

The internet is a wonderful tool for bringing people closer together.

I'm going to check out the other blog now. :)

Marja said...

Cool that you already met your neighbours. Here in NZ not many neighbours know each other. Hope you can sort things out with the money.

gaelikaa said...

Hiya! Thanks for coming over and commenting, I came to see your kite post. I'll be back a little later because it's probably too early.

I wish you all the best with your new house. Problems notwithstanding, I'm sure everything will go well for you..

Hilary said...

Sorry about all the financial issues but it sure is cool that you've already managed to meet new neighbours. What wild and crazy world it's become.. and wonderful.

Loz said...

Hi Stevie - I know. I'm lame, just ask my kids :)

Loz said...

You're welcome Katie

Loz said...

Thanks for the explanation Jen, but what am I paying for. Am I only insuring the difference between what I have to borrow and the 80% or am I insuring the whole house. And is the premium just for the time it takes me to pay it down to the 80% level or for the entire period of the mortgage. And finally given, I already paid it for my current home and I will be discharging that mortgage when we sell, why shouldn't I get a refund of some description for the early pay out. If you pay a years premium on your car insurance and seel the car after 6 months, you can get a refund on the final six months. Likewise with health insurance pay for a year but die after 6 months you can get a refund on the balance. This is the only insurance I can think of where you get no policy, you get no benefit for early discharge and you continue to pay even when the conditions that made it necessary in the first place no longer exist. Or am I misunderstanding it :)

Loz said...

Thanks LLCJ - appreciate your visit too.

Loz said...

It's weird Marja - we haven't even moved in and yet we know more people down there than we do in our current immediate neighbourhood. I couldn't even tell you what one lot of our next door neighbours look like.

Loz said...

Hi Hilary - and the best thing is that so far they all seem to be really nice people :)

Loz said...

Gaelikaa - thnaks for dropping by - I scheduled the kite post for 6pm Melourne time :)

Anonymous said...

Banking is so competitive now Laurie, that I cannot see why you cannot negotiate this insurance premium. I agree with you too that there should be a refund on premium when you don't sit in that over 80% borrowing catagory anymore.
No policy document? There has to be. Check further on that.

I'm just racking back my brains on this stuff. (Haven't done lending for over 20 years now.

Does the same bank hold the mortgage on your current property? I'm just thinking perhaps a separate bridging loan could be negotiated (would probably be a bit higher rate) without the necessity of the new housing loan exceeding their 80% requirement. The higher interest rate on the bridging may work out cheaper than the insurance premium. Then when you sell existing home, bridging is cleared.

Loz said...

I'm just having a rant :)
I spoke to our broker today and he's asked our builder to give him some examples of similar houses sold in the same area. At this stage the valuer has decided he won't use any of the records of sale in other estates even though they are in the same post code. A revaluation - upwards of where we currently sit which is $30k less than it is costing, will at least mean a lower amount of insurance to pay.