Lenders Mortgage Insurance (LMI) is often misunderstood, with many borrowers thinking that it is actually protecting them, when in fact it is protecting their lender.
When lending more than 80 per cent of a property's value, lenders require borrowers to take out LMI to protect the lender if the borrower were to default on their loan.
The LMI premium is a one off charge which can be paid for at the time that the loan is funded or added on to the loan amount. Premiums increase as the Loan to Value Ratio (LVR) increases above 80 per cent, with some lenders going as high at 95 per cent.
Some lenders will waive LMI on a case by case basis if special conditions are met which could include: -
- The LVR is only slightly over 80 per cent
- No LMI payable for loans up to 90 per cent for certain professions including; (doctors, lawyers & engineers)
- Lender has an internal LMI substitute
To work out how much LMI you may have to pay, check out our LMI calculator.
LMI can be very expensive, so many borrowers choose to avoid paying LMI in a number of ways:
- Contributing enough funds through their own savings and gifts so that they are only borrowing up to 80 per cent of the property's value
- Provide an additional property as additional security to reduce the LVR to 80 per cent or below
- Have a family member guarantee their loan by providing a property as additional security to reduce the LVR to 80 per cent or below
While no one likes to pay LMI, it does offer those with a small deposit the chance to buy a home sooner rather than saving the full 20 per cent which can be a daunting task.
To find out your home loan options including whether you may have to pay LMI, call us today on 03 9432 6070 or contact us here.