One of my clients recently came to me after talking with another broker, who in my opinion set the loan up in the broker’s interest and not the clients. Advising the client to sink all of his 120k deposit into his first home, simply to avoid paying mortgage insurance (see my other blog post for more on this). So why is this dangerous? You are tying up ALL your cash into your property. All your savings/inheritance/whatever. You are at the mercy of property cycles and values rising for you to access your equity in the short or longer term to invest in your second/third etc. Property is a long term investment and whereas you may get lucky in the short term with good growth, you may have to wait a few years to get the gains you need to press on with number 2.
This is why when a lazy broker suggests you cram all your funds into your home, when there is an option to hold on to your cash and borrow up to 97% they are doing you a potential disservice in the long term. Especially if the only reason is to save mortgage insurance! Plus a loan without LMI is a much easier and faster loan to get approved, not much skill required on the broker’s part. Cash is king, and the more you can hold on to the better for you and your family. LMI is a privilege not an evil and can help you advance your wealth creation through property faster.