Lenders Mortgage Insurance (LMI) helps protect your lender should you default on your mortgage repayments, and the profit on the sale of your home does not cover your outstanding loan amount. It is required if your deposit is less than 20% of your property’s value. However, different lenders have different criteria when determining if you’re required to pay LMI.
How Much Does it Cost?
If you are applying for a $500,000 home loan and have a $50,000 deposit, your LMI could cost over $10,000. However, the actual amount you have to pay depends on your LVR and how much money you borrow. In addition, the cost of LMI for the same loan could change depending on the lender. This is because each lender has its way method of calculating LMI.
Is it Better to Pay LMI or Save for a Larger Deposit?
With the property market in Australia being hot, you may wonder if it’s cheaper, in the long run, to have a small deposit with a higher LMI or save up for a 20% deposit with no LMI. Unfortunately, there’s no simple solution to this question. The answer depends on your own situation.
For example, if you’ve found your dream home and don’t have a large deposit, paying LMI may make sense to make sure you can buy the home you want. However, if you are in no rush to buy a home, saving for a larger deposit makes more sense because you won’t have to pay LMI.
LMI can be expensive. At Mortgage House, we want to help you navigate the home buying process by explaining how your deposit affects your LMI. If you are in the process of buying a home and have questions about your LMI, our brokers can help answer any questions you may have.
