First of all, what is LMI? LMI stands for Lenders Mortgage Insurance. LMI is a type of insurance that protects a lender against loss if you, the borrower, default on your loan and are unable to repay the full amount owed. Although LMI protects lenders and provides security for the mortgage, it is an additional expense for borrowers. They often have to pay thousands of dollars for it—a cost that may not significantly reduce their loan payments enough to make their monthly instalments more affordable.
The good thing is property buyers can minimize their borrowing costs and have LMI waived by selecting the right type of home loan.
HOW TO AVOID PAYING LMI ON MY HOME LOAN?
- Apply for a low-deposit home loan.
- If you have a deposit of less than 20%, you can explore other avenues such as using alternative forms of security or having guarantors to bridge the deposit gap.
- Options include government schemes that offer no LMI for first-home buyers and family guarantees.
- If you have a supportive family member, you can leverage their property as security for the loan or have them act as a guarantor. This is a beneficial option if you haven’t saved up a substantial deposit.
LARGER DEPOSIT
- While this option might require more time and upfront costs, it can be a prudent choice for homebuyers who aim to build greater equity in their home over time.
- If you can save up 20% or more of the purchase price of your home, you will not be required to pay LMI.
- In general, when purchasing an investment property, the cost of a home loan is tax deductible. Therefore, if your accountant informs you that it’s possible to deduct this expense from taxes (as it is considered an interest payment on a personal loan), it could be another avenue for managing LMI payments.
FIRST HOME BUYER LMI WAIVER AND GOVERNMENT GRANTS
- The First Home Loan Deposit Scheme (FHLDS) provides an assurance to eligible first home buyers, enabling them to borrow up to 95% of their property’s value with a 5% deposit, and the government covers the LMI premium.
- The First Home Owner Grant (New Home) is a grant available to eligible owner-occupiers purchasing their first new home. It can help offset the cost of LMI or other mortgage products. The funding for the First Home Owner Grant varies by state, so the amount received depends on the location of the purchase.
GUARANTORS
- A guarantor is typically an immediate family member who owns a home with little or no mortgage. Their property can be used as collateral to cover the deposit that you, as the borrower, don’t have.
- Having a guarantor can help you avoid paying Lender’s Mortgage Insurance. This is because a guarantor provides the lender with assurance that they will cover the borrower’s debts if the borrower fails to fulfill their commitment.
- However, it’s important to note that being a guarantor also carries a financial commitment. It’s crucial for both parties to understand the risks involved and be familiar with the terms of the loan agreement.
- Our team can facilitate a meeting between the borrower and the guarantor to ensure that all parties comprehend how we plan to structure and process the loan application.
LMI WAIVER FOR PROFESSIONALS
- Some lenders offer special discounts or waivers on LMI for specific For instance, borrowers working in Australia who meet the qualification and income criteria may be able to borrow up to 90% of the property purchase price with LMI waived.
- Certain professionals in fields such as medicine, law, engineering, and accounting may qualify for LMI waivers if they meet specific criteria. This is because they are generally considered low-risk borrowers due to their higher income and job stability.
- The eligible professionals include:
- Doctors, Dentists, Physiotherapists, Chiropractors, Pharmacists, and Veterinary Practitioners
- Accountants
- Nurses and Midwives
- Lawyers, Solicitors, and Barristers
- Professional Athletes
- Banking staff employed by certain banks
To confirm eligibility for an LMI waiver, applicants are required to provide evidence of income, such as payslips or tax returns, demonstrating that they meet the income and eligibility requirements.
Not all lenders offer LMI waivers; some may be more willing to negotiate than others. It is important to shop around among different lenders and find the one that offers the best deal for your specific circumstances.
A mortgage broker, like us, can assist you in comparing interest rates from various lenders, providing you with multiple options that don’t require a large deposit or payment of Lenders’ Mortgage Insurance. We simplify and streamline the process of selecting a home loan, making it simple and straightforward for you
