Lenders Mortgage Insurance
If you’re borrowing more than 80-85% of the value of your property, you probably have to pay Lenders Mortgage Insurance (LMI).
Lenders Mortgage Insurance is an insurance that protects the lender in case of a default on the property - it offers no protection to the home owners in the event they cannot make their repayments. For many borrowers it’s an unavoidable cost but you can take steps to limit how much it costs you and how you pay it.
How Much Does LMI Cost?
LMI is determined by two main factors: your Loan-to-Value (LVR) ratio and your total loan amount. However LMI costs vary between lenders, even if these factors are the same.
You have two general options for paying LMI - either as a lump sum payment when your loan settles or the cost can be added on to your total loan amount. Although LMI is a one-time cost, you may have to pay it again if you move properties.
Tips to Avoid Paying LMI
Deposit size - the more money you’ve saved the less likely you’ll have to pay LMI. If you do find yourself having to pay LMI, your premium will be cheaper the lower your LVR is.
Use a guarantor - Having a family member use their property as security for your loan is a popular way of getting LMI fees waived.
Know your equity - LMI charges can happen when you move or switch properties. Borrowers who move into a new property may have to pay an LMI premium again if their loan still falls in a LMI threshold.
- Borrow less - Borrowing less means you may need to look at less expensive properties. This way your deposit will instantly put more equity in your property.
Confused? A mortgage broker can help.
One of the most confusing aspects of LMI is that lenders each have different criteria and methods of charging the additional cost - some lenders have more competitive LMI costs than others. Our brokers know the LMI costs inside and out and can give you clarity on the LMI policies of specific lenders and banks.
A mortgage broker can assess your financial situation and property goals and give you an overview on the LMI charges you could incur. A mortgage broker can outline strategies that would see you purchase a property sooner, having to pay LMI or to wait until you have a larger deposit and avoid the cost.