If you're a first-time home buyer looking to get a home loan, you may have come across the term "Lenders Mortgage Insurance" or LMI for short. But what exactly is LMI and how can you avoid it? In this blog post, we'll dive into the details of LMI and provide you with some tips on how to avoid it.
What is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance (LMI) is an insurance policy that protects the lender in case you default on your home loan. If you have a small deposit or are borrowing a large amount of money, you may be required to pay LMI to your lender. The cost of LMI is usually added to your loan amount and can add thousands of dollars to your overall loan cost.
LMI is typically required when you have a deposit of less than 20% of the purchase price of the property. This is because lenders consider borrowers with a smaller deposit to be higher risk, as they have less equity in the property and are more likely to default on their loan.
How to Avoid Lenders Mortgage Insurance (LMI)
If you're a first-time home buyer and want to avoid LMI, there are a few strategies you can use:
Save a larger deposit:
The easiest way to avoid LMI is to save a larger deposit. If you have a deposit of 20% or more, you won't need to pay LMI. Saving a larger deposit may take longer, but it can save you thousands of dollars in the long run.
Use a guarantor:
Another option is to use a guarantor, such as a family member, to help you secure your loan. A guarantor agrees to take responsibility for your loan if you default on your repayments. This reduces the lender's risk and can help you avoid LMI.
Consider a different type of loan:
Some lenders offer low-deposit loans that don't require LMI. For example, some lenders offer a Family Pledge Loan, where a family member provides security for the loan using the equity in their own property. This can help you avoid LMI while still allowing you to buy a property with a smaller deposit.
Home Guarantee Position:
The Home Guarantee scheme is an Australia Government initiative to support home buyers to purchase a home for a minimum of 2%-5% (depending on the scheme) deposit without the need for paying lender mortgage insurance.
Take advantage of occupation promotions:
Some lenders offer occupation promotions for some industries such as doctors and nurses to purchase a home for no LMI.
Lenders Mortgage Insurance (LMI) can add thousands of dollars to your home loan, so it's important to understand what it is and how to avoid it. If you're a first-time home buyer and want to avoid LMI, consider saving a larger deposit, using a guarantor, or exploring different types of loans that don't require LMI.
Remember, buying a home is a big decision, and it's important to do your research and understand all the costs involved. By understanding LMI and how to avoid it, you can make a more informed decision and save yourself money in the long run.
Comments