How to avoid paying Lenders Mortgage Insurance
Did you know there was a way to avoid paying LMI? There’s a little-known secret in the mortgage business, which many homeowners and investors aren’t aware of. It’s a somewhat low-key clause that banks share only with their most low risk clients, known as “professional borrowers”, who can access a range of interest rate discounts and fee waivers due to their A-grade risk profile.
These industries include professional, white-collar careers such as:
- Medical professionals (doctor, dentist, optometrist, veterinarian, pharmacist, etc)
- Finance and accounting professionals, including auditors and actuaries
- Lawyers, barristers and conveyancers
- Engineers and surveyors
- Select mining fields
There are a number of conditions borrowers need to satisfy in order to qualify for waived LMI, such as membership of their relevant industry association and a minimum income/time spent in their career.
If you’re approved for this fee waiver, you could save thousands of dollars on your next property purchase. However, if you don’t meet the criteria, there may be other options available to you to save money on your loan.
For instance, some lenders opt not to use mortgage insurers. Instead, they self-insure or underwrite their own loans by establishing their own internal risk process.
For borrowers, this means your loan application will involve just one step – being processed through your bank – rather than two steps, which includes being assessed by your bank or lender and then being assessed by your mortgage insurer.
Those lenders that choose to self-insure often have more flexibility when it comes to levelling an in-house “risk fee” or “reduced equity fee”. On a $650,000, 90 per cent loan, for instance, you might pay a risk fee of $9,000, where a standard LMI premium could set you back up to $15,000.
With savings this substantial up for grabs, it’s important to engage a professional when obtaining finance for your next property purchase. If you’re borrowing for an investment property, you ideally want to work with a professional who is experienced working with investors, as they’ll be able to help you negotiate the best fees, terms and rates for your unique situation.