What is Lenders Mortgage Insurance & when is it applicable to you? Find out how LMI works in Australia & learn how to get approved
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Wondering what Lenders Mortgage Insurance is? We walk you through how LMI works and how you can get the lowest LMI premiums for your home loan.
Will is looking to buy a new home for his family.
He has just found his dream home and has gone to the bank for a mortgage. As he applies for the loan, the banks slap him with a Lenders Mortgage Insurance premium!
So what is Lenders Mortgage Insurance?
LMI is insurance that protects the lender in the event that you default on your home loan. It doesn’t protect you as the borrower!
It is a once of insurance premium, payable when your loan is advanced.
For example, Will is looking to buy a house for $500,000.
If he were to borrow 90% of the property value, he would have to pay $8000 in Lender Mortgage insurance.
However, if Will were to borrow 95% of the property’s’ value, then he would have to pay $14,000 in lenders mortgage insurance.
The more you borrow, the higher your LMI premium.
The great news is, different LMI providers have different premium rates. This means that there can be thousands of dollars in difference, between the cheapest and most expensive LMI providers.
This is good news for Will.
Lenders Mortgage Insurance is only applicable if your loan poses a high risk to the bank. This is generally because you are borrowing over 80% of the property value.
So should Will buy now or save a larger deposit? What will be cheaper?
In most cases house prices will grow faster than your savings, so it is better to by sooner rather than later.
One other thing!
Did you know that if Will is a doctor or his parents guarantee his loan then he may have his LMI premium waived? It can potential save him thousands.
So can Will choose which mortgage insurer his bank uses?
No, lenders have agreements with just one or two insurers and cannot get any other insurers to approve your loan.
The great news is, by choosing your lender you choose which mortgage insurer your loan is insured through. This way you can reduce the cost of your LMI premium.
What is better is that lenders with lower LMI premiums also tend to have better interest rates as well!
This is great news for Will and great news for you.
Check out our LMI calculator to see what your premium is.