Lenders Mortgage Insurance (LMI) can help you get into the property market sooner, and for less. While it may seem like just another costly fee on the road to home ownership, LMI is actually a helpful tool for both buyers and investors.
With increasing property prices, saving even a small deposit for a home can be challenging. It could take years for buyers to reach the 20% deposit that is required, by which time property prices have probably already risen again.
This is where LMI steps in, allowing buyers with less than a 20% deposit to get into the property market sooner. As the name suggests LMI protects the lender, not the borrower, in the event of default. Without LMI it would be considered too risky for a lender to even consider lending money to a buyer with less than a 20% deposit.
According to the Reserve Bank of Australia more than one-quarter of Australian housing loans are estimated to be covered by LMI. The cost of mortgage insurance varies from lender to lender, but will be based on the loan amount and level of risk. It can be purchased upfront, or it can be capitalised into your home loan.
There are a multitude of reasons a responsible homeowner should consider LMI, including (but not limited to):
Getting in with a smaller deposit
LMI allows you to take out a home loan with a smaller deposit, getting you into the market sooner. Given the rising rates of property, it’s not a stretch to say that you can actually save money over the course of your loan by getting in sooner and avoiding inflating rates.
Lenders usually require borrowers to have at least a 20% deposit. However, with LMI, a homeowner can get in for far less, even just a 5% deposit.
Getting a loan with a limited credit history
Lenders don’t like lending to individuals with poor credit (or with very little credit history). It’s far more stable to lend to individuals with a proven track record.
If you’re unable to get a home loan because you have poor credit or a lack of history, some LMI providers could be your ticket into the property market. Look for alternative LMI providers with flexible criteria who can approve you for LMI. With LMI approved, lenders tend to be more forgiving and flexible because the entire situation is more secure.
Lower rates
With a good credit history, stable income and LMI, borrowers can take advantage of discount home loans and low interest rates. Without LMI borrowers would pay very high interest rates resulting in a longer, more expensive loan term.
Mortgage House
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home, you can contact us for advice about the best options for you when it comes to your mortgage. The cost of your mortgage can drastically affect your financial planning, so it pays to speak to the experts about it.
