The dream of owning a home often comes with a hurdle: the deposit. Saving a 20% deposit can seem like a mountain to climb, especially in today’s market. But there’s a potential solution that could help you step onto the property ladder sooner: Lenders Mortgage Insurance (LMI).

What is LMI?

LMI is an insurance policy that protects the lender if you, the borrower, default on your home loan. It’s typically required when you borrow more than 80% of the property’s value, meaning you have a deposit of less than 20%.

Why do lenders require LMI?

From a lender’s perspective, borrowers with smaller deposits pose a higher risk. LMI mitigates that risk for the lender, allowing them to offer loans to borrowers with lower deposits.

How does LMI help you?

LMI can be your ticket to homeownership by:

• Reducing the deposit hurdle: Allows you to purchase a property with a smaller deposit, potentially years earlier than saving the full 20%.
• Increasing your borrowing power: Borrow a larger amount, giving you access to a wider range of properties.
• Entering the market sooner: Don’t miss out on your dream home while waiting to save a larger deposit. Capital growth could outpace your savings efforts.

When is LMI payable?

LMI is usually a one-off cost paid at the start of your loan. It can be added to your loan amount or paid upfront. The cost of LMI varies depending on:

• Loan amount: Larger loans generally incur higher LMI premiums.
• Loan-to-value ratio (LVR): The higher your LVR (i.e., the smaller your deposit), the higher the LMI premium.
• Property type: LMI may differ for different property types, such as houses, units, or investment properties.
• Your credit score: A good credit history can sometimes result in lower LMI premiums.

Is LMI worth it?

While LMI adds to the upfront cost of your home loan, it can be a valuable tool for entering the property market sooner. Weigh the cost of LMI against the potential benefits:

• Opportunity cost of waiting: Consider how much property prices might rise while you save a larger deposit.
• Rental costs: Factor in the ongoing cost of renting while you save.
• Personal circumstances: Assess your individual financial situation and homeownership goals.

Need help navigating LMI?

Understanding LMI and its implications is crucial when considering your home loan options. We can help you assess the costs and benefits, explore alternatives, and find the best path to homeownership for your unique circumstances. Contact us today for expert advice.