Lenders Mortgage Insurance explained
It’s easy to think that property prices will just keep going up and up. And while there’s always the chance that a market ‘correction’ will see prices stabilise (or even drop) in the future, not even the pandemic has been able to reign in property price increases.
Whether you’re a first homebuyer or potential investor, it’s pretty natural to want to get into the market as soon as possible. Rock-bottom interest rates make the prospect of owning a property more realistic too.
For most people, the biggest hurdle to catching this property wave is saving for the initial deposit. With the average apartment in Melbourne selling for $570,000, saving for a 20% deposit – $114,000 – can seem impossible. Add in stamp duty, and you’re looking at a couple of years of average income.
And that’s where Lenders Mortgage Insurance steps in.
What is Lenders Mortgage Insurance
Lenders Mortgage Insurance (LMI) protects your bank or lender if you are unable to meet the repayments on your loan. Your lender takes out insurance to cover themselves for any losses they suffer if you can’t pay your loan off. And, financial institutions being what they are, they pass this insurance cost on to the borrower – you.
With LMI, a lender will be willing to offer a larger loan, meaning you require a lower deposit. If you have stable employment, a good credit history and decent savings, you’re in a good position to ask a lender to cover you for a lower deposit. Don’t expect miracles, but shaving 5% or even 10% off the required deposit suddenly makes property purchase more realistic.
LMI – the benefits
When property prices are on the rise, time spent out of the market is time missing out on capital growth. If LMI means getting into the market sooner, it soon pays for itself. While your loan (and therefore your repayments) will be higher, consider that it’s also time spent not paying rent. A financial adviser can help you work out the sweet spot in terms of what you can afford.
Things to know
LMI costs money. The amount varies depending on the size of the loan and the amount of LMI. Paying 10% on an average apartment will cost you upwards of $17,000, but slash $57,000 off the deposit. Some lenders will ask for this insurance payment up-front, and others might let you add it to the total cost of purchase.
Talk to us
Investigating your options and working out whether to buy now or save extra deposit is a decision that our brokers can help you with.
Contact us today and we can help you work out whether you might qualify for Lenders Mortgage Insurance, find you a great home loan, and get you into the property market faster.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!