Are you considering taking out a mortgage as a first home buyer? Or thinking about refinancing your home loan?
If so, you may or may not have to purchase lenders mortgage insurance (LMI). LMI is an optional insurance policy that protects the lender in case you default on your loan.
In this blog post, we’ll explain everything you need to know about LMI. We’ll cover what it is, how it works, and who needs it. We’ll also discuss the pros and cons of purchasing LMI. By the end of this post, you’ll be able to make an informed decision about whether or not to buy LMI.
Here’s lenders mortgage insurance explained.
What is lenders mortgage insurance?
Lenders mortgage insurance (LMI) (sometimes also referred to as mortgage lenders insurance) is insurance that home buyers take out to protect the lender in case of default. It is a means to protect the lender in the event that you default on your home loan.
How does it work?
Here’s how lenders mortgage insurance Australia works: LMI is mandatory for borrowers who want to purchase a home with a loan-to-value ratio (LVR) of more than 80%. That means if you want to borrow more than 80% of the property’s value, you’ll need to take out lenders mortgage insurance.
If the borrower defaults on their loan, LMI will reimburse the lender for their losses. This can include the entire amount of the loan, or just a portion thereof. In some cases, LMI may also cover legal costs associated with foreclosure proceedings.
When do you pay it?
You generally pay for lender’s mortgage insurance when you take out your loan. It is added to your mortgage and charged as a non-refundable fee paid at loan settlement.
Is lenders mortgage insurance a one off payment?
The LMI is usually a one-time premium, paid when the loan is taken out.
How much is LMI?
The lenders mortgage insurance cost varies depending on the size of the loan, the LTV ratio, and the lender. Typically, the cost of lenders mortgage insurance ranges between 0.5% and 2% of the total loan amount. This can translate to thousands of dollars.
How to avoid lenders mortgage insurance?
“Is it possible to have lenders mortgage insurance waived?”
Putting down more than 20% of the purchase price of your home will exempt you from paying this premium. However, there are certain professions for which there is a total lenders mortgage insurance exemption.
The LMI waiver will only be applied if you are a member of specific associations for these professions:
- Medical professionals (e.g., doctors, nurses, pharmacists, healthcare workers, etc)
- Accountants, lawyers, solicitors and barristers
There are also other conditions for having your lenders mortgage insurance waived like getting a guarantor for your home loan or refinancing your mortgage with your current lender.
No lenders mortgage insurance for first home buyers – is it possible?
When it comes to lenders mortgage insurance first home buyer like you may want to pay attention to certain programs that will get you a LMI discount or a complete waiver.
If you are a first home buyer ,you may want to avail of government grants like the First Home Loan Deposit Scheme. With as little as 5% deposit, you can enter the property market without paying the LMI premium.
If you think you meet certain conditions to qualify for an LMI exemption or discount, or if you want to avail of government grants that will help waive the LMI, talk to a mortgage broker and they will be able to verify your eligibility.
Need more info on LMI exemption? Talk to us
For further questions about LMI exemption, please don’t hesitate to contact the team at Q Financial. Our mortgage brokers would be more than happy to help guide you through the process and answer any questions you may have.
We look forward to working with you soon!
