Is it possible to avoid Lenders Mortgage Insurance (LMI) on your home loan?
Lenders Mortgage Insurance is an insurance that protects the bank and is required to be paid if you have less than a 20% deposit – unless you qualify to avoid LMI.
Every cent you save matters when you’re purchasing a house for the first time. However, if it isn’t possible for you to save a big enough deposit to buy a home, then chances are that you will have to pay Lender’s Mortgage Insurance.
This can be a huge cost for someone who has never bought a property before. Therefore, a wise approach is to know about it beforehand and factor it in accordingly. Here are our tips on how to avoid lenders mortgage insurance.
What is Lenders Mortgage Insurance and Who needs it?
It is important to know what Lenders Mortgage Insurance (LMI) is and how a person becomes liable to pay it. LMI is a one-off insurance payment that safeguards a lender in case a borrower defaults on a loan. In other words, it provides protection to your lender against the risk of loss.
If you are purchasing a home for the first time and have a high loan to value ratio, you would probably end up paying for the Lenders Mortgage Insurance.
In other words, if you have less than a 20% deposit you probably are going to have to pay lenders mortgage insurance.
How much can avoiding LMI save?
LMI is calculated based on the value of the property you have purchased, LMI also takes the location and amount of the loan into consideration.
For example, if you buy a house for $500,000 and have to pay an initial deposit of $30,000, being a first home buyer, you will probably have to pay approximately $12,500 as Lenders Mortgage Insurance.
As you can see below, having LMI waived could save you up to $34,372 in the costs of purchasing your property!
Can Lenders Mortgage Insurance be paid in Instalments?
The answer is yes! You can either make an upfront payment or you can choose to add it to your loan balance. By choosing the latter, the amount can be paid off through monthly repayments.
However, if you choose to add it to your loan amount, you will have to pay the interest charged on premium until the loan expires. This will result in a substantial increase in the overall mortgage cost.
How to Avoid Lenders Mortgage Insurance?
Following are some of the tips you can use in order to avoid the lender’s mortgage insurance cost:
- ✅ Method 1: Work in a Profession that is eligible to avoid Lenders Mortgage Insurance
- ✅ Method 2: Medical Professionals are eligible to avoid LMI
- ✅ Method 3: Look at other lenders to avoid LMI to 85%
- ✅ Method 4: Save more deposit
- ✅ Method 5: Get a Guarantor to avoid LMI completely
Method 1: Work in a Profession that is eligible to avoid Lenders Mortgage Insurance
If you work as an Accountant, Lawyer, Professional Athlete, or Entertainment professional you may be eligible to avoid LMI and have it waived up to 90%.
- Medical doctors (who can qualify for up to 95% no LMI)
- Dental surgeons
- Entertainment professionals
- Professional athletes
There can also be some additional criteria around income, so speak to our mortgage brokers to see if you qualify.
Method 2: Medical Professionals are eligible to avoid LMI
Medical Professionals Get LMI Waived. If you are a Doctor, Dentist, GP, or Specialist you may be eligible to avoid LMI.
- Cardio Thoracic Surgeon; Cardiologist;
- Clinical Pharmacologist;
- Cosmetic Surgeon;
- Ear and Throat Surgeon;
- Emergency Surgeon;
- Gastro Intestinal Surgeon; Gastroenterologist;
- General Practitioner; General Surgeon;
- Haematologist; Hepatologist;
- Neuro Surgeon; Neurologist;
- Ophthalmologist; Optometrist;
- Oral and Maxillofacial Surgeon;
- Orthopaedic Surgeon; Orthopaedic Registrars;
- Paediatric Surgeon (Neonatal/Perinatal);
- Plastic Surgeon;
- Reconstructive Surgeon;
- Respiratory/Thoracic Surgeon;
- Vascular Surgeon;
Method 3: Look at other lenders to avoid LMI to 85%
Lenders Mortgage Insurance costs vary between different lenders, looking at a $600,000 purchase with a 10% deposit the LMI Costs range from $10,301 to $16,121 – a difference of $5,820!
But that is not all, there are some lenders in the market that can look at going to 85% LVR without Lenders Mortgage Insurance.
They do have specific criteria around this, including:
- ✅ Satisfactory credit scores apply for all applicants
- ✅ Perfect conduct on all accounts
- ✅ Applicant must be an Australian Citizen or permanent resident
- ✅ All security providers need to be borrowers and mortgagors
- ✅ A minimum PAYG / Self Employed “Qualifying Income” per application (excluding rental income) of $180,000 per annum (only applies to Sydney Zone 1A securities)
- ✅ Security must be located in Citi Zone 1A or Zone 1B area (Major Metro)
- ✅ Excludes new/ high-density units, rural residential, construction loans and vacant land
- ✅ Maximum one property per development.
- ✅ Any adverse comments or risk ratings in the valuation report is unacceptable.
- ✅ Repayment must be principle and Interest
- ✅ Min loan amount $250,000 per security property
- ✅ Maximum per security loan amount depending on property location
- ✅ Max loan exposure not to exceed $1.5 million
- ✅ 0.25% margin applied to all variable rate and fixed rate
- ✅ Minimum $20,000 on variable rate (cannot be 100% fixed)
- ✅ No Cash Out, or Debt Consolidation
Method 4: Save more deposit
If you do save more, you’ll be eligible for a genuine savings discount. This is where you’ll be able to get standard LMI rates rather than the LMI premium rates. This rate is cheaper, so in the long run, you’ll be better off.
You can purchase a home without the paying lenders mortgage insurance.
For that, you have to maintain a reasonable deposit. If you have a small deposit and your loan to value ratio is more than 80 percent, the risk of loss for the lender increases. On the other hand, having a bigger deposit means the loan amount will be lower and hence, lower risk for a lender.
You do not have to pay Lender’s Mortgage Insurance if you have a deposit worth 20% of the property value. Therefore, you need to decide whether the dream of buying a new home should be delayed while you save a little more money, or if you should buy a property sooner with the added cost of the mortgage.
Method 5: Get a Guarantor to avoid LMI completely
If you don’t have 20% of the loan, finding a guarantor can be a good option to avoid LMI costs.
Your guarantor will ensure that they will cover a part of your loan in case you fail to make the loan payment. It can be the ‘bank of your parents’ that provides financing for your home with a loan or cash gift. The amount paid by a guarantor can also add up to your deposit and enable you to avoid the mortgage payment.
Do you have someone close enough to you that would be willing to be your guarantor? Guarantees are immediate family members like parents, siblings, grandparents, spouses, de facto partners and adult children. Yet parental guarantees are usually most preferred. The main requirement is that the guarantor is to have sufficient equity in their property along with a stable income.
You will also be able to extend your borrowing capacity up to 105% which means that the original, bigger loan now becomes a possibility.
Last but not least, always seek professional advice. Your broker can also help you secure the right source of finance that is in line with your financial goals. Moreover, brokers also work with a variety of lenders in the market. This can be an additional opportunity as they might help you find a loan without having to pay the mortgage insurance.
Why not speak to Hunter Galloway today about all of the different options to help make your dream of buying a home, come true.
How does Hunter Galloway help avoid LMI?
It’s important to work with a mortgage broker that understands your situation, and occupation. At Hunter Galloway we have access to over 30 lenders, we do all the paperwork for you, negotiate a better deal with your bank and bests of all our services do not cost anything to you as we are paid by the banks.
Help this is all confusing
If you are looking to avoid LMI and wanting to buy a home or refinance speak with one of our experienced mortgage brokers to walk through the next steps with you.
At Hunter Galloway we help clients get 90% no LMI Home loans in this competitive market, we give you the actual strategies that have helped other home buyers like you secure a property when there have been 5 other offers on the table! Enquire online or give us a call on 1300 088 065.