What is Lenders Mortgage Insurance?
In simple terms, LMI is designed to protect lenders against the potential loss they may incur if a borrower was unable to repay a home loan.
Lenders Mortgage Insurance can help those with small deposits (less than 20% of the value of the property) buy a home sooner, because enables potential buyers to borrow a larger loan amount from the lender.
LMI should not be confused for a mortgage insurance policy that is designed to safeguard the buyer. LMI will only cover the lender, and not the borrowers.
While LMI only covers your lender, and not you, many lenders will pass on the cost of the LMI
How much does Lenders Mortgage Insurance cost?
LMI costs will vary depending on your individual circumstances, and can range anywhere from a few thousand dollars to up to tens of thousands of dollars.
The factors taken into account for the calculation include:
- Your deposit
- The value of the property you’re buying
- The term of your mortgage
- Will the property be owner-occupied or used as an investment
- Your employment status
- Your savings
- Whether you are a first home buyer
The good news is that the fee doesn’t always have to be paid up-front. Many lenders offer the option to add the cost of the LMI into the home loan.
If you chose to go down this path, you need to understand that even though you will have the convenience of paying your LMI over a period of time, you will end up paying a higher premium cost due to incurring interest.
How can I get an LMI estimate?
LMI can be a significant expense, so it is important to include it in your budget when deciding whether you can afford a new home loan.
Speak with your mortgage broker about how much LMI you might need to pay, depending on the purchase price and LVR of the property in question. If you don’t have a mortgage broker, you can use our quick and easy service to find one here.
Saving a 20% deposit to buy a home can be a difficult journey. The introduction of lenders mortgage insurance has allowed more buyers to get into the property market sooner, as it allows borrowers with smaller deposits access larger home loans.
If you don’t think you’ll be able to afford both a house deposit and LMI, you could look at the option of using a guarantor.
Some lenders will allow you to use the equity in a family member’s home to secure your home loan. This can be a good option if you have parents that are able and willing to help you get into the property market.
There are also some lenders that have a list of accepted professionals that might be able to borrow more than 80% of the property of a home loan without having to pay LMI or with access to reduced premiums. These professions include those employed in the medical, accounting, finance, legal or engineering fields.
Your best bet is to talk to a mortgage broker or financial adviser that can look into your financials and advice what is your best option based on your personal circumstances
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