Lenders Mortgage Insurance

Bryce Holdaway has been quoted as saying 'Lenders Mortgage Insurance - Avoid if you can, embrace it if you have too!'

 

Lenders' Mortgage Insurance or LMI, is insurance that protects the lender, not you. It’s usually a one-off payment made by the borrower at the time of loan settlement. You don’t need to arrange LMI yourself – your lender will sort it for you. LMI means that even with a small deposit, you have the potential to own your home sooner. As recent history shows, housing prices can rise faster than First Home Buyers can save, paying LMI will allow you to enter the market before any further price rises.

 

For most applicants, the maximum LVR before LMI needs to be paid is 80%. However for certain professions, LMI may be waived for LVRs up to 90% and are assessed on an individual basis. These professions include Medical professionals: Doctors, Dentists and other Specialist, Lawyers, Solicitors, Barristers, Accountants, Emergency Services such as Police, Ambulance officers and Paramedics. Your expert mortgage broker at SPM Finance will tell you if you are eligible for a LMI exemption or discount.

 

An example to illustrate how Lenders Mortgage Insurance (LMI) works for Bill and Jill applying for a loan of $700,000 who have a 15% deposit:

​

• Loan Amount: $700,000

• Deposit Percentage: 15%

• Deposit Amount: 15% of $700,000 = 0.15 * $700,000 = $105,000

• Amount Borrowed: $700,000 - $105,000 (deposit) = $595,000

• In this scenario, the borrower has a 15% deposit, which means they need to borrow $595,000 to cover the remaining cost of the property.

• LMI Premium: The LMI premium is typically calculated as a percentage of the loan amount. The exact LMI premium can vary based on several factors, including the loan-to-value ratio (LVR) and the LMI provider. Let's assume an LMI premium of 2% of the loan amount.

• LMI Premium: 2% of $595,000 = 0.02 * $595,000 = $11,900

• Total Loan Amount: The total loan amount, including the LMI premium, is the amount the borrower owes the lender:
  $595,000 (loan amount) + $11,900 (LMI premium) = $606,900

​

Bill and Jill need to borrow a total of $606,900 to purchase the $700,000 property with a 15% deposit. The LMI premium of $11,900 is added to the loan amount, and the borrower will make mortgage payments on this total amount.

 

It's essential to note that LMI costs can vary, and this is a simplified example. LMI premiums and policies can differ between lenders and LMI providers, so brokers will consult with there specific lender or LMI provider for accurate cost estimates.