24 Jul How To Reduce Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance (LMI) is an incredibly helpful tool that allows homebuyers to purchase a property when they otherwise might not be able to.
LMI is a one-off insurance premium that protects the lender in the event the borrower is unable to manage their repayments. This allows the lender to offer a loan to a borrower who might have a lower deposit than the typical 20 per cent.
Using LMI means that as a homebuyer, you might enter the property market years ahead of schedule if you had to spend the same amount of time-saving for a deposit. It also means you can capitalise on any capital growth and potentially pay less for the property today than you might have to in five years’ time.
However, there is a cost that comes with using LMI, and it can run into the tens of thousands of dollars depending on your individual circumstances. Fortunately, there are some things you can do to reduce the cost.
Lower your LVR
Given that LMI is an insurance premium, if you can reduce the risk to the lender, the premium will likely fall as well. The best way to do that is by lowering your LVR as much as you can.
If you can save a decent deposit, the more money you can put down, the better. If you need to go over 90 per cent, that’s when LMI can start to get expensive.
Use a Guarantor or the First Home Guarantee
If you’re a first home buyer, there are several ways you can potentially avoid the costs that come with LMI.
Many first home buyers can purchase a property with a family member acting as a guarantor. These loans effectively use the family member’s equity as a form of deposit, which helps reduce LMI.
Similarly, there are some government programs out there, including the First Home Guarantee, that allow you to access loans with higher LVR. With these programs, you can access a home loan with as little as a 5 per cent deposit and the government acts as the guarantor.
Work in Certain Professions
There are several careers that lenders look upon favourably, and that means you can often access higher LVR loans without needing to pay LMI.
Typically, doctors, dentists, and people in the medical field are considered low-risk borrowers, and lenders will offer loans to them without LMI. Other professional jobs, such as lawyers or accountants, can also access loans without LMI, but the LVR is not normally as high as in the medical field.
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