Lenders Mortgage Insurance can be a great tool to help homebuyers get into a property that they otherwise might not be able to afford. However, it comes with a cost.
LMI is a one-off insurance premium that is put in place to protect the lender in the event the borrower is unable to manage their repayments. For many loans, LMI can add a significant upfront cost.
LMI is normally applicable when a borrower is seeking to get a loan with an LVR of more than 80 per cent.
Using LMI can be a very valuable tool for many homebuyers, as it might allow you to purchase a property years ahead of when you might have otherwise. You’ll be buying a property in today’s dollars and can benefit from any capital growth, instead of being required to pay a higher price at a later point.
If you are required to pay LMI, there are some ways you can potentially reduce the cost.
Lower the LVR
LMI is applied on a sliding scale, meaning that it is not a fixed sum and depends on the value of the property as well as the LVR.
The further from 80 per cent LVR, the more LMI you will be required to pay, as this represents more risk for the lender. If you go over 90 per cent, LMI can increase.
Even a slightly higher deposit can help lower the LMI costs.
Use a Guarantor or the FHLDS
Depending on the type of homebuyer you are you might be able to access a program that helps reduce the LMI burden.
First homebuyers are potentially eligible for the First Home Loan Deposit Scheme. This grant lets homebuyers put down a 5 per cent deposit, with the Federal Government effectively removing the LMI cost.
Otherwise, you could look at a guarantor loan or a family pledge, where a family member puts up equity in their own home to help cover a deposit shortfall.
Work in Certain Professions
Some lenders allow certain professions to access higher LVR loans without the need to pay LMI.
This is generally available for professionals in speciality industries such as lawyers, doctors, physiotherapists and dentists.