Medical Practitioners have always enjoyed preferential treatment when it comes to lending. Whether it be a commercial loan, investment loan, lease, or otherwise, lending institutions are clamouring for what is viewed as the recession-proof “Doctor’s Dollar”.
A trend pioneered by The Commonwealth Bank of Australia has now seen specialist lending divisions in all the major banks and the emergence of second-tier lenders specialising in providing more flexible lending terms, high loan-to-value ratios, and heavily-discounted rates. The market now has a wide array of products focused on providing lending solutions to medical practitioners.
In this environment, how do you ascertain which is the best lender or product?
There is no blanket answer to this question. Rather, the purpose of the loan and the underlying strategy are the key factors to be considered when determining the best fit for you.
In this post, you’ll discover the main benefits that medical practitioners can achieve through specialist lending. First, however, it is important to understand two basic banking terms: LVR and LMI.
1. Loan-to-Value Ratio (LVR)
The LVR is the amount that you are borrowing, represented as a percentage of the value of the property being used as security for the loan. An LVR fee is sometimes payable once this percentage exceeds 80%.
2. Lenders Mortgage Insurance (LMI)
LMI is a fee charged by finance lenders. It is generally charged when you have a deposit that is less than 20% of the property’s purchase price. For example, if you have a 10% deposit on a property of $500,000, LMI is approximately $7,920.
LVR for Medical Practitioners (LMI Waiver)
Pro: Medical practitioners are being offered up to 100% LVRs without having to pay Lenders Mortgage Insurance (LMI).
LVRs up to 90% are not penalised in any way, meaning that you can essentially borrow an extra 10% against the property with standard lending terms.
Cons: Any loan offerings that provide an LVR higher than 90% usually require an accelerated repayment on that amount above and beyond 90%.
That is, you may be required to pay down the extra amount in a short period of time, thus substantially increasing your repayment amounts. Therefore, the higher LVR can assist younger practitioners with getting into the market, but it can also place considerable strain on their cash flow.
Pros: The specialist lending divisions that have been established for medical practitioners have different credit and pricing policies on the mortgages they provide.
As such, these lenders have access to heavily discount rates and, in some circumstances, allow for a greater borrowing capacity purely based upon your profession. This equates to significant savings over the life of you loan.
The level of rate discount will depend on your loan size, income, repayment type and LVR requested.
Cons: The more bells and whistles that you request, the less negotiating power you have on the rates of your loan. Consider the examples below:
Doctor A: Wants to borrow 80% of the purchase price of a family home; he would like a variable rate and repayments to be on a principal and interest basis.
Doctor B: Wants to borrow 95% of the purchase price of an investment property; he would like a fixed rate, interest only loan.
From the above example, Doctor A would be in a stronger negotiating position with respect to rates than Doctor B.
Remember, rates are not everything
Structuring your mortgage from the outset is extremely important, and, if done incorrectly, could cost you a substantial sum of money in the long term. Critical factors to consider when structuring your loan are:
1. Purpose of the loan in the short and long term: Home to live in, investment, or both?
2. Flexibility: How easily can you change the structure and purpose of the loan?
3. Loan Extras: Offset, Redraw, Fixed Rate, Split Loans.
There are so many great mortgage options available to medical practitioners, and there is no “one size fits all” solution. Get in touch so we can connect you to our network of lending experts that specialise in mortgages for medical practitioners.