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The
Propertybuyer

Podcast

Hear the latest weekly insights into the property market via podcast by Rich Harvey, CEO and founder of Propertybuyer.

 
Sun 23 Jun '24 with Rich Harvey Why Tax Depreciation Matters
 
 
Fri 14 Jun '24 with Rich Harvey Tax Effective Property Investment Strategies
 
 
Fri 24 May '24 with Rich Harvey Granny Flats: Boost Your Yields & Faster Mortgage Repayments
 
 
Fri 3 May '24 with Rich Harvey Unpacking the Northern Beaches with Incredible Agents
 
 
Fri 29 Mar '24 with Rich Harvey How to build a $7 Million Property Portfolio from scratch
 
 
Sat 16 Mar '24 with Rich Harvey Why Invest in Melbourne?
 

 

Listen to many more
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Is It Worth Paying LMI - July 2023

July 24, 2023 / Written by Rich Harvey

 

By Guest Blogger, Louisa Sanghera, Principal Broker,

Zippy Financial

Lender’s mortgage insurance (LMI) is a type of insurance you can take out to help you buy a property when you have less than 20% deposit saved. It can help you get into the property market sooner – but it comes at a cost. 

Let's explore how LMI works, the pros and cons and how much you can expect to pay.

Right now, many people are struggling to get finance approval because their borrowing capacity has been smashed by higher interest rates. Research is showing that for a couple earning a combined gross income of $150,000 per year with no kids, their borrowing power has dropped from $994,000 in March last year to $800,000 this year. 

We’ve had 2 more rate rises since then – so it’s now

While LMI can’t help to boost your borrowing power, it can help you buy a home with a much smaller deposit (as low as 5%)

 

How does LMI work? 

Essentially, it’s insurance that a lender takes out to protect itself against the risk of you not paying your mortgage. It reassures the lender that if you stop making payments and your property has to be sold for less than the value of the mortgage, they can claim the difference on insurance. 

Importantly, LMI covers the lender, not you – but YOU pay the premium. The reason you pay the premium is because you are getting the benefit. Without LMI and with a smaller deposit, the lender wouldn’t feel comfortable giving you a loan.

It might look something like this: 

  • You want to buy a home for $700,000
  • A 20% deposit is $140,000 – a huge sum of money! 
  • By sticking to a stringent budget and setting aside a couple of tax returns each, you and your partner are able to save $70,000 (still a whopping big amount!)
  • This is equal to a 10% deposit, and your lender accepts this deposit together with LMI
  • Your LMI premium is $12,500 

LMI can be charged as a lump sum payment upfront, or it can be capitalised or added to your loan (so on this example of a $630,000 loan and LMI of $12,500, your bank might offer you a loan of $642,500).

 

Is LMI worthwhile? 

The answer to this question is highly personal, because it depends on your individual goals, income, budget and overall situation.

But as a mortgage broker, I can say that I have seen LMI help countless borrowers get into the property market sooner. Here are some of the pros and cons to consider:

After reading this far, you might be wondering: is it worth paying an extra 1-3% of a property’s value in LMI in order to get a property loan, or are you better off waiting another three or four years to save for that full 20% deposit?

This is really a personal decision and depends on your unique situation, but there is where working with a broker can be worth its weight in gold. A finance broker can look at your income, savings and options, and help you work out the best path forward – whether it involves LMI or not. Best of all, brokers are free, so you can access our expertise and guidance at no cost to you.

Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial. 

  To have one of the friendly Buyers' Agents  from

propertybuyer to contact you, then click below to :

Send us your property brief   or

call us on 1300 655 615 today.

The Propertybuyer
Podcast

 
Sun 23 Jun '24
with Rich Harvey
Why Tax Depreciation Matters
 
 
Fri 14 Jun '24
with Rich Harvey
Tax Effective Property Investment Strategies
 
 
Fri 24 May '24
with Rich Harvey
Granny Flats: Boost Your Yields & Faster Mortgage Repayments
 
 
Fri 3 May '24
with Rich Harvey
Unpacking the Northern Beaches with Incredible Agents
 
 
Fri 29 Mar '24
with Rich Harvey
How to build a $7 Million Property Portfolio from scratch
 
 
Sat 16 Mar '24
with Rich Harvey
Why Invest in Melbourne?
 

 

Listen to many more
podcasts on our
Podcasts page.