To understand LMI it is necessary to understand what is Loan to Value Ratio (LVR). LVR is the percentage of the property price that you will need to borrow from the lender. For example, if you are looking to purchase a $500,000 property and have savings of $70,000, you will be borrowing 86% ($430,000/$500,000 x 100) of the property value to complete the transaction.
As a general rule, if you are borrowing more that 80% of the property value, you will need to pay LMI to the lender. It is an insurance that protects the lender in an event where a borrower is unable to repay the loan and the lender is not able to recover all of their money.
LMI can be added to the loan amount which is called capitalizing your LMI. This way you can get the full amount that you need for the property purchase.
LMI can be avoided if you have 20% of the property value as the deposit. You can also ask you parents or a close relative to act as a guarantor for your mortgage.
Yes, LMI is a cost that you incur when buying a home if you are borrowing more that 80% of the property value, but it also gives you an opportunity to buy your home with less deposit.
You can contact us and we can find lenders that could allow you to borrow up to 90% of the property value without charging LMI.
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