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What You Need to Know About Lenders Mortgage Insurance (LMI)

Funding OptionsFirst Home Buyer Loans What You Need to Know About Lenders Mortgage Insurance (LMI)
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What You Need to Know About Lenders Mortgage Insurance (LMI)

Lenders Mortgage Insurance (LMI) is a safety net for a lending institution. This arrangement protects an entity like a bank in the event that you, the borrower, are not able to pay back the loan.

LMI is an added cost tacked onto your loan. While lots of people resent the extra expense, it’s really the only alternative to putting down a hefty 20% deposit towards the purchase price or paying higher interest fees.

Put simply, if you can’t prove that you have the money right now to pay back the loan, your bank needs to take steps to protect itself. Lenders Mortgage Insurance is how that’s done and you take care of it by paying a one-time premium, usually at the time of loan settlement.

When LMI Applies to You

Lenders Mortgage Insurance is calculated according to each person’s circumstances. The value of the property, how big of a loan you need, how much you have in savings and what you do for work can all affect how much you pay in LMI.

LMI is almost always applicable if you don’t have that minimum 20% deposit. The more you need to take out in a loan, the greater the risk you pose to your bank. You need to carefully consider your circumstances to find out if any special exceptions apply.

Is There an Alternative to LMI?

You could get out of paying Lenders Mortgage Insurance simply by having that 20% minimum deposit handy. If saving up to that amount is just not practical, see about getting a family member to go guarantor for your property, putting their own property as security against your loan.

Some lenders offer an in-house comparable alternative to LMI, which can be easier to qualify for. Ask about all of your options when discussing your loan.

Further, some very specific professions are eligible for having that LMI cost cut down or eliminated altogether. You’ll need to speak with a financial expert to see if your career qualifies for such an exemption.

Recommendations on LMI

At the end of the day, paying out LMI isn’t such a bad thing. When your bank feels secure, they can grant you access to a larger sum of funds and thereby helping you access your finance much faster than if you had to save to get there.

Keep in mind the following:

– LMI will affect the total amount of your home loan

– Getting approved for LMI can take a considerable amount of time

– The sooner you secure your home, the faster you can build equity in it

– Doing your research (on minimum deposit, loan options etc.) helps!

Should you wait to save up for the deposit or just pay the LMI now? That’s going to depend on your individual financial circumstances. To make sense of where you are at right now, plan a no obligations meeting with Funding Options. After looking at your current situation, we’ll help you figure out whether LMI is the right option for you. Contact us now.

– Dom Cassisi, Managing Director

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