Lenders Mortgage Insurance Explained – What is LMI?
Lenders mortgage insurance (LMI) is essentially an insurance policy you, as the mortgage holder, pays that protects the lenders from financial loss.
Even with a small deposit, you can own your home sooner with LMI. Yes, you heard correctly, you pay for it, not the lender.
But there are some ways to avoid paying mortgage insurance or reduce the costly impact of LMI in Queensland, Australia. Let’s explore further.
When Will I Pay Lenders Mortgage Insurance?
Generally, you will be required to pay for lender mortgage insurance if your home loan deposit is less than 20 percent of the total value of your property, so if your loan-to-value ratio (LVR) is more than 80 percent.
By paying LMI you’ll be able to loan with less deposit – sometimes as low as 5 percent – but it covers the lenders if for some reason you default on your payments. The amount of LMI will be added to your loan as a one-off lump payment at settlement.
For example with a deposit for a $400,000 property on a 30 year loan, you would pay approximately $11,897 in LMI. However, with a 15 percent deposit, your LMI costs would only be $3770.
But this is just one example from one lender. It’s wise to compare LMI quotes from different lenders as you could be surprised at just how much you can save by shopping around.
For example for a loan of $522,500 on a $550,000 property value from one lender, your LMI premium would cost $23,175, however for the same loan and same property value from another lender the premium would only be $16,067. That’s a massive $7108 difference and savings back into your pocket.
Your mortgage broker will be able to help you compare LMI prices between lenders when it comes time to secure your home loan.
What Else Might Affect the Cost of LMI Insurance?
Other factors to keep in mind when looking for your next home loan is the size of your loan. The higher your loan the higher the cost LMI will generally be.
Some financial lenders may also differentiate between an investment and residential property purchase when it comes to LMI cost. As a general guide, investors could pay around 20 percent more for LMI than an owner-occupier.
And finally, your employment status could affect your LMI. Being casual rather than full time could place you as the perceived risk of lending so it might play a factor in your LMI premium.
What Happens If I Refinance Home Loan?
Unfortunately, there is no refund on your LMI premium, regardless of how soon you refinance and you may have to pay it again if your new refinancing loan is more than 80 percent of the value of your home.
Tips to Avoid Paying Lender Mortgage Insurance in Australia – LMI Explained
Now that you know what LMI Insurance is and the factors to consider when purchasing a property, here are some useful tips to help you avoid or lower the cost of LMI in Queensland, Australia.
- Save as much deposit as you can. The closer you can get to 20 percent the better.
- Get a family member to go guarantor. This allows the family member’s home to be used as equity and therefore lowers your LMI cost
- Apply for the First Home Loan Deposit Scheme. Under this scheme, eligible homebuyers can apply for a loan with a deposit as low as 5 percent and not need to pay for LMI.
- Compare LMI quotes from a number of lenders as the cost can differ greatly.
Talk To A Mortgage Broker
The team at Coronis Finance in Queensland, Australia can help you assess your situation and calculate how much Lenders Mortgage Insurance (LMI) you may need to pay for your specific circumstances. Please contact one of our mortgage brokers today for a personalized assessment on lenders’ mortgage insurance QLD.