Lenders Mortgage Insurance

Lenders Mortgage Insurance (LMI) helps Australian homeowners enter the market earlier through allowing you to borrow a higher percentage of a property’s value.

For first home buyers, particularly those struggling to save a deposit but more than comfortable to meet their mortgage repayments, it can be a key tool to break free of the rental trap.

WHEN DOES LMI APPLY?

So if your deposit is less than 20 per cent of the value of the property, and especially if you have no deposit at all, you will need to factor LMI into your home loan.

 

LMI is a big helper

When you have a more modest deposit, paying LMI can be the best move, as it allows you to buy into the market at the current price.

Delaying and saving a further 5-10% could mean paying 10%+ more for a property, especially in a desirable area where prices rise rapidly.

Worth it:  LMI is a helpful product that can get you into your own place, sooner.

Worth it: LMI is a helpful product that can get you into your own place, sooner.

 

WhY LMI charged?

When you finance a higher proportion of a property’s purchase price the bank or lender takes on a higher level of risk in the event you fail to meet mortgage repayments, and the property needs to be repossessed and resold. 

LMI is therefore paid by you to insure your lender against loss should this happen.

It is important to be aware that LMI only covers the lender if you default on your loan payments and the lender is unable to secure the full outstanding debt still owing, when they sell your property. LMI does not provide you with any cover.

This type of insurance protects the lender – not the borrower – in the event that the borrower can’t meet the loan repayments and the net proceeds of an enforced sale of the property would not be enough to cover the loan
— Joe Gardiner

The bigger the percentage of the property’s purchase price you have to borrow, the greater the amount you’re likely to pay on insurance. 

LMI Dispensations for professionals

If you are a professional, working in medicine, accounting, and legal fields, you may be able to get a dispensation on LMI. This means you can often borrow up to 85% without having to pay any LMI premium.

Ask us to check if your profession qualifies.

Remember that in some cases lenders may require LMI even if you have a lower deposit, depending on the type and style of property you’re purchasing – for example, some inner-city apartments or rural land. LMI is usually paid as a one-off lump sum at the time of settlement but in many cases it can also be added into the loan amount and paid off over the life of the loan – a term known as capitalising the LMI. 

Speak us to assess your options and if you may be subject to LMI on your property purchase.