What is considered ‘high risk’ lending?
A buyer’s ability to make their mortgage repayments may be considered high risk if they want to borrow more than 80% of a property’s value.
Lenders Mortgage Insurance (LMI) is one way to overcome this risk. It’s paid by the buyer to protect the lender if repayments on a home loan can’t be met and the sale of the property doesn’t cover the outstanding loan balance.
How is LMI calculated?
As with all things, each lender is different. However, an LMI premium is usually calculated based on a number of factors including:
- The property purchase price
- Deposit amount
- Loan to value ratio (LVR)
- If the client is self employed
- State of the property
- If the property is for investment or owner occupied purposes
How does LMI impact your clients?
The good news is that they may be able to borrow more or buy sooner than they thought, because the lender is protected by LMI.
LMI is a one-off fee that can be added to their loan or paid up-front. Essentially your clients will pay more, but it can be factored into the costs when reviewing their financial situation.
What can you do?
Understanding your buyer's financial position early on is an important step in the sales process. Having every buyer qualified through referring them to a mortgage broker will help identify those clients who need to go down the LMI path in order to successfully purchase.