LMI protects the lender if a borrower can’t meet their loan repayments. LMI reduces the lender’s risk, which can mean that the lender is prepared to lend a larger amount or approve a home loan without the borrower having to provide a 20% deposit. Many people prefer to pay the LMI premium, rather than wait a few more years until they have saved enough to avoid paying LMI.
How much does LMI cost?
The cost of LMI can vary based on the proportion of the property value borrowed and the loan amount. This is why an accurate cost of LMI cannot be given until a property and lender have been selected. The LMI premium is a one-off, non-refundable fee which is paid when the loan settles. Most lenders are prepared to include the LMI premium in the loan amount. If the LMI premium is added to the home loan amount, the borrower will pay interest on it and it will increase the minimum monthly loan repayments.
How to avoid paying LMI
One way to avoid paying LMI is to save up the minimum deposit of generally 20% for the property purchase. Another way you may be able to avoid LMI is if your deposit is less than 20% but you have a guarantor for the property loan. Your guarantor can assist by providing additional security which reduces the LVR to 80% and therefore allows you to avoid paying LMI.
For most applicants, the maximum Loan to Value Ratio (LVR) to avoid paying LMI is 80%. However for certain professions, LMI may be waived by some lenders for LVRs of up to 90%.
These professions include:
• Medical professionals such as doctors, dentists, veterinarians and optometrists
• Lawyers, solicitors and barristers
Exemptions are usually assessed by lenders on an individual basis.
An expert Made For You Finance broker can tell you whether you are eligible for an LMI exemption or discount.