Finance

What is Lenders Mortgage Insurance (LMI)?

May 05, 2020

Saving for a house deposit can be very difficult, but Lenders Mortgage Insurance helps people achieve home ownership sooner.

Lenders Mortgage Insurance (LMI) is a fee banks and other finance lenders charge borrowers when they are deemed high risk. Usually, this is when their deposit is less than 20% of their property’s purchase price.

How do I pay the Lenders’ Mortgage Insurance?

The Lenders’ Mortgage Insurance premium is a one-off, non-refundable fee which is paid at loan settlement. For most lenders, the Lenders’ Mortgage Insurance fee can be included in the loan amount.

How much is Lenders’ Mortgage Insurance?

This depends on numerous factors such as, your lender, the size of your deposit, whether the property is for investment or not. Your broker can show how to calculate Mortgage Insurance for your personal circumstance.

ANZ say, “As a very rough guide, LMI could cost over $10,000 on a home loan of $500,000 for which you’ve saved a $50,000 deposit. The actual cost of LMI usually depends on your Loan to Value ration and amount of money you borrow.”

How can I avoid paying Lenders’ Mortgage Insurance?

The most obvious to avoid having to pay Lenders Mortgage Insurance is to have a nice big deposit to begin with. You’ll probably need a deposit that’s at least 20% of the value of the property you want to buy if you want to avoid paying LMI this way.

Your second option is to find someone who’s willing to act as a guarantor. Your parents, for example, can agree to guarantee your loan. In most cases the guarantor will only be liable for a part of your loan – typically enough so that you’re able to avoid LMI.

LMI vs more savings – which is smarter?

Everyone is different, we suggest speaking to your broker who can assess your personal circumstances and ensure your loan options are in line with your financial goals.

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