06 Aug What is LMI?
LMI is a term commonly used in residential mortgage but do you know what does it stands for?
LMI or Lender’s Mortgage Insurance is an insurance that can be summarized as “An insurance policy that protects the lender while you, the borrower pay for it”.
LMI is payable to the insurer when the loan amount is in excess of 80% of the property price or valuation. For some lenders, LMI exemption is available for borrowers who are medical professionals and accountants. This allows the medical professionals and accountants to borrow up to 90% of the property price or valuation without having to pay for LMI.
Another question we get every now and then… “Should I be borrowing up to 90% and pay for LMI?” Well my answer is… “It depends on the situation”.
If the property you are purchasing is for owner occupied and you have the 20% deposit, I would recommend borrowing not more than 80% and avoid paying LMI premium. However, if you have less than 20% deposit but have the serviceability to repay a 90% loan, by all means pay the LMI premium if you are keen to own a home faster.
For investors, I would normally recommend paying the LMI in order to borrow more from the lender as the LMI premium will be classified as a business expense. This will minimize the amount you need to contribute towards the purchase.
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