What is LMI?
- Established in the mid 60’s
- Helps more people enter the market
- 20% deposit on loan to avoid LMI
- Makes less risk for lenders to make their business more lenient to population
LMI was introduced to Australia in 1965. It was developed to assist first home buyers to enter the property market. In those days, a 5% deposit was sufficient and 80% could be borrowed.
From 1986 onwards, bank contracts were liberated. Individuals could then borrow 95% rather than the limited 80%. Nowadays, certain professions are offered 100 percent to lend to as they're very low risk.
LMI was introduced to protect lenders from borrowers who default on their mortgages. If a default occurs, the insurer pays out the lender. The insurer may chase up the borrower for debt owed.
How long does LMI last?
- How long does LMI last for your loan
- How long is the LMI approval phase
- One off payment that lasts the loan lifetime
- Approval times
There are two contexts for this question. How long does the LMI last for your loan? How long is the LMI approval phase?
LMI is a one-off payment that lasts the life of your loan. Approval times depend on the lender however they are usually approved in conjunction with the loan application.
How do I pay for LMI?
- Pay LMI upfront
- Pay LMI as part of your loan repayments (LMI capitalisation)
LMI is usually paid upfront. It can be difficult to accumulate funds for either a deposit or LMI. The same people who can’t afford deposits often, but not always, have trouble paying LMI upfront. LMI can be paid by including the fee on top of your mortgage. Our expert brokers will explain your options and answer any questions you may have.
Note that LMI is more affordable than a deposit. If your short term goal is to have a property and you haven't accumulated enough funds for a 20% deposit, you can still apply for a home loan but would need to pay for LMI as a premium. The higher a deposit you put in, the less of a premium you would need to pay on your LMI.
- Property value is $900,000
- The deposit is $90,000
- The loan amount is $810,000
- That’s approximately 10% deposit which would require LMI
In this scenario, the approximate LMI is $18,000. Please note, determining the price of LMI is complex however our brokers have access to a large panel of lenders and will match you to the most competitive price on the market. Basically, the more you put into a deposit, the more you are rewarded with LMI savings.
To find out how Mortgage Providers can help you, contact our expert mortgage brokers today.