LMI… FRIEND OR FOE?
Published: 18.06.2018 by markmortgagebroker
LMI stands for Lender’s Mortgage Insurance and is an insurance which is paid by the purchaser to insure the lender because a loan amount over 80% of the value of the house is deemed to be a higher risk.
Opinions on whether buyers should pay LMI are divided but it’s always worth going through the process of a full assessment before you decide whether it’s worth it.
As an example, let’s say you are purchasing an $800,000 home (including stamp duty, application fees and conveyancing costs) and you only have a 10% deposit, $100,000, a great effort!
You’ve been saving almost $1000 every week with your partner for the last two years to achieve this. You apply for a loan of $736,000 and your LVR (see my other blog if you’re unsure about this) is 92%.
Your LMI component on a 92% LVR will be approx $23,000 which will be added to the total loan amount so that you can get you into your home today.
However you’ve decided to wait another 2 years to save the other 10% so that you did not have to pay LMI.
Home values have go up conservatively by at 3% each year ( as an example )so that home worth $800,000 has increased by approx $48,000 by the time you are ready to buy.
Paying the LMI, even in a conservative market will save you thousands in the long run.