When it comes to buying your home, the process can get complicated, and many people asked about Lender’s Mortgage Insurance (LMI), which is a one-time fee charge on top of your initial principal if you have less than 20% of your home’s valuation as a deposit. While this fee can be amortised over the term of the loan, it is still a significant expense that needs to be considered carefully.
Here are some of the most common LMI questions asked in 2018:
What is Lender’s Mortgage Insurance in simple terms?
LMI is an insurance fee that a lender charged to protect themselves if you default on your loan. It is a one-off payment that is often included in your total loan value.
How much is Lender’s Mortgage Insurance?
This will depend on your lender, your state of purchase, the amount of deposit you have available, and the total purchase price and valuation of the property. While the amount can vary, it is important to factor in the ongoing cost of interest to your loan principal.
What is the difference between the Lender’s Mortgage Insurance and Mortgage Protection Insurance?
The main difference is the person or entity that is being protected. LMI protects the lender and ensures that the loan amount will be paid out if the borrower defaults. Mortgage Protection Insurance (MPI) protects the buyer and helps cover mortgage payments in times of unplanned financial hardship.
How can I avoid having to pay for Lender’s Mortgage Insurance?
The easiest way to avoid LMI costs is to have a deposit higher than 20% of the property price, including stamp duty and fees if applicable.
Should I wait until I have more than a 20% deposit to avoid LMI?
This will depend on your current situation. While it is great not to pay LMI, sometimes reaching the 20% deposit will severely extend the amount of time it takes for you to buy. Consider things like an increase in property value and money saved on not renting to understand what is better for your situation.
My deposit is less than 20%. Is there any way I can still avoid paying LMI?
The answer here is yes, if you can meet some specific conditions of various lenders. While these are not common, and often have very strict rules, there are cases where LMI can be avoided.
If I refinance or transfer my loan in the future, will my LMI transfer?
In most cases, the answer is no. However, if you transfer your loan to a new lender, and the value of the equity in the property is still less than 20% of the loan value, the LMI will most likely need to be paid again. If you are looking at refinancing, and you are close to the 20% equity mark, it might just pay off to make some additional payments to bring the repayable principal amount down and avoid this cost when transferring to a better loan product.
If you have any questions about Lender’s Mortgage Insurance or any other aspect of applying for and getting approved for a home loan, please feel free to reach out to our team at FutureNow Finance for a confidential and obligation free discussion on 1300 013 730.