Lenders Mortgage Insurance (LMI) is a crucial concept for homebuyers to understand, especially those with smaller deposits.
Here’s what you need to know:
What is LMI?
LMI is insurance that protects the lender, not the borrower, if you default on your loan payments. It’s typically required when your deposit is less than 20% of the property’s value.
When is LMI required?
Usually for loans with deposits less than 20% of the property value
The smaller your deposit, the higher the LMI cost
Cost of LMI:
- It’s a one-off, upfront cost paid at settlement
- The fee can be significant, often thousands of dollars
- You can pay it upfront or add it to your loan amount (to maximum allowed)
Avoiding or Minimising LMI:
- Qualify for Government Schemes for First Home Buyers
- Save a larger deposit (20% or more)
- Use a family guarantor
- Explore shared equity options
- Look for lender promotions that waive LMI for certain professions (with your broker)
Key Considerations:
- LMI is non-refundable and non-transferrable
- It’s calculated based on your deposit size and loan amount
- LMI allows some buyers to enter the market sooner, despite the added cost
While LMI can help you secure a home loan with a smaller deposit, it’s important to weigh the costs against the benefits.
At Buy Invest Live, our experienced mortgage brokers can help you explore strategies to minimise or avoid LMI, tailored to your specific financial situation. We’ll work with you to find the best approach for your home buying journey.
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