How to Avoid Paying Lenders Mortgage Insurance (LMI)
LMI is typically required when you borrow more than 80% of the property’s value. Lenders see this as a higher risk, and LMI protects them against potential losses. The cost of LMI can vary significantly depending on the loan amount, deposit size, and the lender. It can range from a few thousand to tens of thousands of dollars, adding a substantial amount to your upfront costs.
Ashley Critcher
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Lenders Mortgage Insurance (LMI) can be a significant expense when buying a home. It protects the lender if you can’t meet your mortgage repayments, but it doesn’t benefit you directly. Fortunately, there are several strategies you can use to avoid paying LMI, making homeownership more affordable.
What is LMI and Why Do You Need It?
LMI is typically required when you borrow more than 80% of the property’s value. Lenders see this as a higher risk, and LMI protects them against potential losses. The cost of LMI can vary significantly depending on the loan amount, deposit size, and the lender. It can range from a few thousand to tens of thousands of dollars, adding a substantial amount to your upfront costs.
Strategies to Avoid Paying LMI
Here are some effective strategies to help you avoid paying LMI:
Save a Larger Deposit: The most straightforward way to avoid LMI is to save a deposit of 20% or more of the property’s purchase price. This reduces the lender’s risk, and you’ll likely be approved for a loan without LMI. While it may take longer to save a larger deposit, the long-term savings can be substantial.
Consider a Guarantor: A guarantor, typically a parent or close family member, can use their own property as security for your loan. This reduces the lender’s risk, allowing you to borrow with a smaller deposit without incurring LMI. However, it’s crucial to understand the guarantor’s responsibilities and potential risks involved.
Look for LMI Waivers: Some lenders offer LMI waivers to certain professions, such as doctors, lawyers, and accountants. If you work in one of these fields, you may be eligible for a waiver, even with a deposit less than 20%. Our lending specialists can take you through your eligibility and the best option for you.
Take Advantage of Government Schemes The Australian government offers several schemes to help first home buyers, including the First Home Guarantee. This scheme allows eligible buyers to purchase a home with a deposit as low as 5% without paying LMI. Spaces in the scheme are limited and eligibility criteria apply, so it’s essential to check your eligibility and apply early.
Negotiate with the Lender: In some cases, you may be able to negotiate with the lender to waive LMI, especially if you have a strong financial profile and a stable income. Building a good relationship with your lender and presenting a solid case can sometimes result in a waiver.
Buy a Property in a More Affordable Area Consider purchasing a property in a more affordable area. Lower property prices mean you’ll need a smaller deposit, making it easier to reach the 20% threshold and avoid LMI.
Making the Right Choice
Avoiding LMI can save you a significant amount of money, but it’s essential to consider your overall financial situation and long-term goals. Saving a larger deposit, using a guarantor, or taking advantage of government schemes can be effective strategies. Explore your options and choose the one that best suits your needs. When you’re ready to take the next step, our team at Rho Home Loans is here to help. Contact us today to discuss your options and turn your homeownership dreams into reality.
