If you borrow over 80% of the property’s value, the lenders will require you to pay lenders mortgage insurance of LMI. This is a safety net for the lenders to ensure they don’t lose their investment entirely if you’re unable to pay the money back. However, paying LMI can take a toll on your finances.
At Home Loan Comparison Co, we believe clients should look into LMI if they want to get a lowdeposit or no deposit loans. This can be a big factor that will influence your future financial health.
How is LMI Cost Determined?
There are many factors that go into determining the LMI required for the loan. The lenders will look at loan size because bigger loans will have higher LMI. They will also look at the deposit size and property value. For example, the LMI will be higher if you pay no deposit as opposed to a payment of 10% deposit.
There are different LMI rates for owner occupier loans and investment property loans. However, first home buyers will have lower LMI premiums. The lender will explain the details regarding LMI carefully so you can make the right decision about your home loan.
How To Avoid LMI?
It is possible to avoid LMI on home loans and reduce your expenses. Here are some tips that can help you:
- Keep the Value Ratio Below 80% – The LVR or Loan Value Ratio is the amount you borrowed compared to the value of the home. For example, if your new home costs $100,000, you need to keep the loan value below $80,000 to avoid LMI. This means you will have to put down at $20,000 as a deposit.
- Premiums on Loan Amount –Premiums on loan amount exceeding $300,000 are higher than loans below that amount. You might have to pay less if you have a smaller loan.
- Split Loans –You can split a loan to pay lower LMI premiums. For example, if you need $600,000 in loanfor a property, you will save more money on LMI premiums if you get two loans of $300,000 each instead of one loan of the full amount.
- Family Guarantee –You can ask a family member to guarantee a set amount of the loan money on their owned property to avoid LMI premiums. For example, if you’ve saved up enough to pay 10% as a deposit, you can ask your sibling or parents to guarantee the rest.
If you want to know more, don’t hesitate to contact us at Home Loan Comparison Co on0419 856 669.