Lenders Mortgage Insurance

Now you are deep within the process of securing a home loan, you more than likely have come across the term ‘Lenders Mortgage Insurance’. You may have also read about it in our previous sections on home loan options and home loan deposits.

Here we will go into further detail to explain what Lenders Mortgage Insurance (otherwise known as LMI) is and how it will affect your total loan amount and repayments.

 
Lenders Mortgage Insurance

Now you are deep within the process of securing a home loan, you more than likely have come across the term ‘Lenders Mortgage Insurance’. You may have also read about it in our previous sections on home loan options and home loan deposits.

Here we will go into further detail to explain what Lenders Mortgage Insurance (otherwise known as LMI) is and how it will affect your total loan amount and repayments.

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How much is LMI?

LMI is calculated based on the value of the property, which will dictate the size of your loan, as well as your deposit amount. The larger your deposit and the closer you are to borrowing 80%, the lower your mortgage lenders insurance will be. Additional factors that come into the calculations are whether the purchase is for investment or personal use, your employment status and your chosen lender’s insurer. LMI fees will vary from lender to lender so it is worth the time to research various lender’s LMI fees.

Pros and cons of lenders mortgage insurance

The beauty of LMI is that it allows you to enter the property market and own your own home without a 20% deposit. The downside is that it will cost you in the long run. Your repayments will include the additional insurance to cover the fact that you didn’t have an upfront deposit. It is a personal choice as to whether you save up the 20% deposit or decide to proceed and accept LMI repayments as part of your home loan.

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What is Lenders Mortgage Insurance?

LMI is a fee charged by your lender to those who are borrowing more than 80% of the home’s value/purchase price. It is a fee to cover the banks for those lenders who are considered a high risk. It is an insurance that is designed to cover the banks should you ever default on your home loan repayments.

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How can I avoid paying LMI?
  • First Option

    The best way to avoid paying LMI is to increase your deposit amount to 20% of the property purchase price. This means you will borrow no more than 80% of the total property value, therefore decreasing your Loan to Value Ratio (LVR).


    There are some lenders that loan up to 85% before LMI kicks in. If you have less than a 20% deposit, you will need to do your research as to lenders that offer this set-up. Financial gifts from family members can contribute towards your deposit. Your bank may need evidence that this is indeed a true ‘gift’ and is not required to be repaid.

  • Second Option

    Having a guarantor on your home loan will also help avoid LMI. Your guarantor will need enough equity to cover the 20% deposit in order to avoid LMI.


  • Third Option
    Some occupations that are considered low risk may assist to help you waive LMI. These occupations include those such as accountants, engineers, teachers and doctors. Check with your lender if you fall into one of these categories as your LVR may be higher before LMI kicks in.

At Organic Home Loans, we are here to assist you to understand LMI and how it impacts your loan and your repayments. We cut through the red tape and provide you with the facts. The more informed you are about banks’ expectations and requirements, the greater your chance of a successful outcome.

 

Let our home loan experts help you understand LMI and negotiate the best interest rate possible so you can find the home of your dreams.

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