A Local’s Guide to Lenders Mortgage Insurance (LMI) in the Sunshine Coast Market
If you’re a Sunshine Coast local looking to buy a home, you might have come across the term Lenders Mortgage Insurance (LMI). This insurance can be a significant factor in your home buying journey, especially if you’re planning to make a smaller deposit. With this, we’ll break down what LMI is, why it’s necessary, and how it impacts your home purchase in the Sunshine Coast market.
What is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance is a type of insurance that protects lenders if you default on your mortgage. It’s typically required when you borrow more than 80% of the property’s value, meaning you have a deposit of less than 20%. LMI is not for your benefit; rather, it safeguards the lender’s interests.
Why Do You Need LMI?
Lower Deposit Options
In the Sunshine Coast market, property prices can be quite high, making it challenging for you to save a 20% deposit. LMI allows you to enter the market sooner by enabling you to purchase a home with a smaller deposit, often as low as 5%.
Increased Borrowing Capacity
With LMI, lenders may be more willing to approve your loan application, even if your deposit is less than 20%. This can increase your borrowing capacity, allowing you to access a wider range of properties.
How Much Does LMI Cost?
The cost of LMI varies based on several factors, including:
Loan Amount
The larger your loan, the higher the LMI premium.
Deposit Size
A smaller deposit typically results in a higher LMI cost.
Lender Policies
Different lenders have varying LMI rates.
On average, LMI can range from a few hundred to several thousand dollars. It can often be added to your loan amount, allowing you to pay it off over time rather than upfront.
When is LMI Applicable?
LMI is applicable when:
You have a deposit of less than 20% of the property’s value.
You’re refinancing your home and borrowing more than 80% of the new property’s value.
It’s essential to check with your lender to understand their specific requirements regarding LMI.
How to Avoid LMI
If you’re keen to avoid LMI, consider the following strategies:
Save a Larger Deposit
Aim to save at least 20% of the property’s value. This might take time, but it can save you thousands in insurance costs.
Look for LMI Waivers
Some lenders offer LMI waivers for specific circumstances, such as professional packages for certain occupations. Check with your lender to see if you qualify.
Consider Family Guarantees
If a family member is willing to act as a guarantor, you may be able to secure a loan without needing LMI. This involves using their property as additional security.