How LMI can work to your advantage

It can be challenging for anyone to save up enough money for a property deposit, so if you’re in a position where you don’t have enough deposit saved and you need to pay Lenders Mortgage Insurance (LMI) then don’t let it be a deal-breaker. Our Arundel, Hope Island and Broadbeach mortgage brokers want you to know how LMI could help put you in a great position to achieve your property goals.

Lenders Mortgage Insurance, or LMI is a fee that banks and lenders charge borrowers when they are thought to be higher risk. Typically, this risk is perceived when a borrower’s deposit is less than 20% of a property’s purchase price.

Paid by the borrower at the time of the property settlement or incorporated into a home loan, LMI is a fee that’s paid to protect the lender if the borrower is unable to make their repayments.

Our teams at Mortgage Choice at Pacific Fair, in Arundel and in Hope Island have helped hundreds of home buyers get onto the property ladder, upgrade, invest or refinance. Although LMI is something that many try to avoid, our mortgage brokers have seen that it can also offer some considerable benefits. Here’s what you need to know about Lenders Mortgage Insurance (LMI).

How does Lenders Mortgage Insurance, or LMI, work?

Banks and lenders require LMI, a type of insurance, when a borrower has a small deposit – generally when it’s less than 20% of the purchase price. This is because there’s a bigger risk that the borrower could default on their loan.

Requiring LMI allows lenders to be compensated if the borrower defaults on their home loan and the property sells for an amount that’s lower than the mortgage value. The difference between the value of the mortgage and the eventual sale price is known as the ‘shortfall’. This ‘shortfall’ is what the lender would recover from the LMI provider if the borrower defaults on their loan and the LMI provider would then look to recover their loss from the borrower.

When do you have to pay the LMI amount?

Every lender’s policy differs, but in most cases, lenders require LMI to be paid if the deposit is less than 20% of the property purchase price. However, some lenders won’t charge LMI even if you have a much smaller percentage deposit depending on other criteria that they set.

Our Broadbeach and Arundel mortgage brokers can guide you on what each lender policy requires when it comes to having to pay LMI.

How much does LMI cost?

Again, this amount can vary. Each LMI provider calculates the cost of this insurance slightly differently, so the amount can differ depending on the lender you choose and the provider they use.

That said, speaking to our mortgage brokers in Broadbeach and Arundel will give you a good idea of how much LMI you may need to pay based on our experience with more than 20 lenders on the Mortgage Choice panel. There are also a few factors that play into how much LMI could be charged, which are:

• The amount of deposit you have - As soon as your deposit is below 20% of the property’s purchase price, you’ll generally need to pay LMI. The lower the deposit amount you have, the more LMI you’ll likely have to pay.
• The size of your home loan - Not surprising, the larger the home loan means that a higher LMI amount will be required. That’s because the more money you borrow, the greater potential loss is to the lender if you default.
• Whether you’re purchasing an investment - Some lenders charge different rates of LMI if you are purchasing a property to rent out, rather than as your place of residence.

How can you use LMI to your advantage?

While paying more can seem like something you’d be smart to avoid, paying LMI could be the best strategy to get onto the property ladder.

Think about the amount of time it could take to save a 20% deposit. If you were to achieve half of that, or a 10% deposit and pay LMI, then you’d be buying a property much faster than it would take you to save the full 20%. Plus, when LMI payments are incorporated into your loan repayments, the additional amount that’s added to cover your LMI could be a lot lower than you’d expect and easily affordable.

Holding off on purchasing property so that you can save for a bigger deposit could mean you won’t need to pay LMI, but it could also mean you’ll risk paying more money for a home if prices go up during the time it takes you to save enough deposit.

Refinancers having to pay LMI to get onto a lower interest rate just need to make sure that the lower interest repayments will save you more than the additional LMI payments.

Everyone’s situation is different, so speaking to our Arundel, Hope Island and Broadbeach mortgage brokers will help you find out if paying LMI could be the right strategy.

If you don’t want to pay LMI, how can you avoid it?

While LMI can make it possible to purchase property or refinance more quickly, here are a few trusted ways to avoid paying it.

1. Focus on saving more – By saving at least 20% of a property’s price, you can be quite confident that you won’t be charged LMI.
2. Get the help of a guarantor – These are often a close family member, such as a parent, who take on some of the risk of a home loan by providing security through the equity in their own property.
3. Being in certain occupations – Lenders are sometimes willing to allow those in jobs like doctors, dentists and lawyers to avoid paying LMI with lower deposits.

Our Broadbeach, Hope Island and Arundel mortgage brokers will talk you through any opportunities available for you to avoid paying LMI, but remember that if you do need to pay Lenders Mortgage Insurance to achieve your property goals then it shouldn’t be a deal-breaker.

Find out if paying LMI could work to your advantage

No matter if it’s your first home, buying a bigger property, an investment or you want to refinance, you don’t need to delay. Our team will go above and beyond to find the strategy that works for your circumstances.

Contact your Gold Coast mortgage broker team for a no-obligation appointment to discuss your options. Call 07 5676 6433 for Broadbeach, 07 5594 6746 for Arundel or for Hope Island call 07 5594 0800. You can also book a free, no-obligation appointment online with one of our mortgage brokers directly at our locations - click to book for Broadbeach, Arundel or Hope Island.