Lenders Mortgage Insurance (LMI) is an insurance that lenders take out in order to be able to lend to borrowers who have a small deposit (generally less than 20% of the value of the property). Smaller deposits increase the risk for lenders, so LMI protects them from financial loss in the event that the borrower can’t afford the upkeep of their mortgage repayments.
There are numerous ways in which Lenders Mortgage Insurance (LMI) can be avoided and all 1st Street brokers will discuss each of these options with you before applying for a home loan to see whether you’re eligible.
• The most obvious way is by having a deposit saved of 20% or more of the purchase price. This must factor in the extra costs associated, like stamp duty and solicitors fees etc.
• Having a guarantor – someone (often a relative) that is willing to take on the responsibility of paying off the loan if you’re ever unable to meet the repayments. By doing so, the guarantor is ultimately offering a property they own as additional security for your loan, allowing the lender security from the equity in your guarantor’s property.
• If you are in one of the following professions: medical profession (doctors, dentists, veterinarians and optometrists), lawyers, solicitors or barristers, LMI can be waived with a loan to value ratio of up to 90% (meaning only a 10% deposit is needed) and are assessed on an individual basis.
The key when deciding whether to take up LMI or waiting until you’ve got a 20% deposit is to understand the pros and cons of both options. The 1st Street team has a priority to guide you through the entire loan process. This includes assessing your loan to value ratio, your likelihood of loan approval and your ability to service the loan as well as determining whether you’ll need to pay for LMI. All first home buyers have different circumstances and goals, and the 1st Street team ensures every individual client is advised and supported through the most beneficial option for their needs.
This article was contributed by REBAA affiliate member 1st Street Financial