How to avoid paying Lender’s mortgage insurance
Lender’s mortgage insurance (LMI) is an insurance required in most instances when a loan value is more than 80 per cent of a property’s purchase price, as well as in some other circumstances. Basically, when a lender considers a loan to be a high risk, LMI is most likely to be payable.
The purpose of LMI is to protect lenders in case the borrower fails to make repayments and, when the loan-to-valuation ratio (LVR) exceeds 80 per cent, so the loan amount is more than 80 per cent of the value of the property being mortgaged, the risk of a lender not covering their costs should the borrower default is increased.
Here are some ways you can avoid paying the costly insurance premium.
Save for a larger deposit
A larger deposit decreases the loan amount needed, so will decrease the loan-to-valuation ratio (LVR) and the perceived risk and may be the key to avoiding paying LMI. LMI becomes very costly when the LVR is over 90 per cent, so saving a bigger deposit might be more worthwhile.
Get a guarantor
If you are unable to come up with the full 20 per cent deposit but still want to avoid LMI, you do have the option of getting a guarantor on your loan. In this situation a close relative, such as a parent or sibling, guarantors the use of equity in their property to help you secure yours. In some instances, having a guarantor on your loan may mean that you won’t need a deposit at all.
Then after there is growth in the market, you can get the property refinanced and if the LVR is less than 80%, the guarantor may be removed from the loan.
Take advantage of professional benefits
Some lenders will allow a higher LVR and reduced or waived LMI fees, based on a borrower’s profession, some of these include but not limited to medical professionals and accountants. Due to the perceived stability and high income, some lenders consider professionals earning a minimum of $150,000 a year as ‘low risk’ borrowers and therefore offer them special loan benefits.
For more information on LMI or getting a loan please contact Bear Loans via email or call us on +61 402 042 061
Disclaimer
This information is not to be relied upon without speaking to your finance broker, tax agent and financial adviser.
