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lmi

How to avoid paying LMI

Lender’s mortgage insurance (LMI) is an insurance that is taken out by the lender to protect them in case the borrower can’t repay the loan. If the borrower is unable to repay the loan, the insurance company will take over and will be responsible for selling and defaulting the loan. It is required in many instances when a loan is worth more than 80 percent of a property’s purchase price. In very basic terms, when a lender considers a loan to carry a high risk, LMI is likely payable. Here’s how you can avoid paying the costly premium:

Save for a higher deposit

A higher deposit means a smaller loan amount, so will decrease the LVR and the perceived risk, and may be the key to avoiding paying LMI.

Get a guarantor

If you don’t have the financial capacity to meet a 20 per cent deposit but still want to avoid LMI, you do have the option of getting a guarantor on your loan. Normally a close relative, such as a parent, guarantors can use the equity in their property to help you secure yours. In some instances, having a guarantor on your loan may mean that you won’t need a deposit at all.

Take advantage of professional benefits

Although special offers based on the borrower’s profession are not limited to medical professionals, doctors are the big winners when it comes to waived LMI fees. Due to the perceived stability and high income, some lenders consider professionals earning a minimum of $150,000 a year as ‘low risk’ borrowers and therefore offer them special loan benefits. 

Access First Home Loan Deposit Scheme

Eligible first homebuyers and single parents may have access to the government's First Home Loan Deposit Scheme. FHLDS is an Australian Government initiative to support eligible first home buyers to build or purchase a first home sooner. The Scheme is administered by the National Housing Finance and Investment Corporation (NHFIC).

Under the Scheme, eligible first home buyers can purchase or build a new home with a deposit of as little as 5 per cent (lenders criteria apply). This is because NHFIC guarantees to a participating lender up to 15 percent of the value of the property purchased that is financed by an eligible first home buyer’s home loan. 

How to avoid paying LMI while refinancing?

To keep away from this, try and pay down as much of your loan as feasible so your LVR is 80% and below. If you`re refinancing with a partner, then you might be able to avoid paying LMI if your partner can share the cost.

How is LMI calculated?

LMI generally costs between 1% and 2% of the property value. The final cost of LMI relies upon many factors, however the major ones are:

  • Property Cost: The better the property value, the greater risk  and therefore the higher LMI cost.
  • Deposit Amount: There is a correlation between your home loan deposit and your LMI cost. The higher your deposit, the lower your LMI cost.
  • Property Type: Some lenders appraise an owner-occupied property as less of a risk and therefore charge a lower LMI cost.

 

OzBroker compares premiums from a variety of lenders to guarantee you receive the best deal. Please call us at 0426667696 or shoot us an email at contact@ozbroker.com.au to find out which strategy is best for you to avoid paying LMI.

 
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