What is Lenders Mortgage Insurance (“LMI”)?
Lenders Mortgage Insurance or LMI is a one-off insurance premium payable when you take out a new loan. The LMI premium is added onto your home loan and payable over the loan term.
Read on to find out how you might be able to avoid LMI on your property purchase…
LMI is calculated based on the size of your deposit and how much you borrow. The more you contribute to the purchase price of your property, the lower the cost will be. LMI protects the bank against any loss which they may incur if you are unable to repay your loan. It does not protect you if you do not repay your loan.
You are generally charged LMI when you borrow more than 80% of a property’s value, but sometimes when you borrow more than 70% for certain high risk properties such as high density apartments.
There are different LMI insurers in the market and as a result the amount of LMI charged to you differs amongst lenders. If LMI is payable, we look at what impact this will have on your loan repayments helping you get a great home loan deal.
Can I avoid paying LMI?
There are several ways of avoiding LMI including,
- saving a minimum 20% deposit plus costs, meaning you only borrow a maximum of 80% of a property’s value,
- utilising a lender who only charges LMI when you borrow more than 85% of a property’s value,
- taking out a personal loan so as to avoid borrowing more than 80% of a property’s value,
- using a specialist lender who recognises medical practitioners, lawyers and accountants as low risk, meaning they can borrow up to 90% or even 95% of a property’s value without incurring LMI,
- taking out a family guarantee loan where your parents (typically) put up there home as security such that the combined value of your property and your parents is less than 80% LVR or
- by receiving a gift from your parents (typically) again to keep your loan to less than 80% of your property’s value.
Way forward
The potential cost of LMI can be significant so it is important you understand what the cost is and / or options to minimise.
We can help you understand your options so make sure you contact us for assistance. Simply email us at info@blambles.com.au or call 1300 955 759 — together we’ll uncover your best option.
Cheers
Campbell.
Invest wisely, borrow carefully, and sleep comfortably.
