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[MoreMore Insights] How to Avoid Paying LMI?



What is Lenders Mortgage Insurance?



Lenders mortgage insurance (LMI) is a kind of insurance used to protect the banks if the borrowers default loan. LMI is a fee that’s required by the bank, but charged by the insurance company. Generally speaking, bank will require you to pay for LMI if your loan to value ratio is more than 80%. However, different lenders may have different rules. Lenders believe that any home loan with an LVR above 80% has a high risk of default, so they will charge higher interest rates and have stricter borrowing capability assessments.


For example, for an owner occupied property of $1,000,000, if you want to borrow 90%, the upfront LMI premium is around $22,000. The Genworth LMI calculator link is https://www.genworth.com.au/products/tools/lmi-fee-estimator

So, is there anyway to avoid paying LMI?



How to Avoid Paying LMI?



-Use a Guarantor

Have a family member to act as security guarantor on your loan, to reduce the LVR for the new property to within 80%.


-Professionals

Some banks are waiving LMI for certain professionals for maximum LVR of 90%. These applications are evaluated on an individual condition, and occupations generally are accountants and finance managers, lawyers, doctors, dentists, nurses and eligible sports and entertainment persons.


-Some banks are charging $1 LMI for first home buyers, up to 85% LVR.


-First Home Owner Guarantee

Under the First Home Owner Guarantee, eligible applicants can borrow up to 95% LVR without paying any LMI.



Features of LMI


After purchasing LMI, there are two things that need to keep in mind. First, LMI is not transferable. When refinancing, you also need to pay LMI to the second lender if LVR is more than 80%. Second, LMI is not refundable. It can be added or capitalized into the loan, and been paid off over the life of the loan.


How is LMI calculated?


LMI phase will vary from lender to lender, and how much LMI you’ll have to pay would depend on a number of factors.

-Size of loan

-Deposit amount

-Property use

-Employment stability

-Lenders insurer



Any questions about LMI? Contact your professional mortgage brokers at MoreMore Finance to get more information.

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