Lenders Mortgage Insurance (LMI)
An insurance premium charged to borrowers that protects the lender, not the borrower, if a high LVR loan goes into default.
In detail
LMI is typically required when LVR exceeds 80 per cent on an owner occupier loan. The premium is a one off cost calculated as a percentage of the loan amount and is higher at higher LVRs and larger loan sizes. Most lenders allow the premium to be capitalised into the loan balance up to a maximum LVR, often 95 per cent inclusive of LMI.
Some borrower groups can access LMI waivers. Medical professionals, legal professionals, and some accounting roles may qualify for 90 per cent LVR without LMI at specific lenders. The First Home Guarantee scheme also allows eligible first home buyers to borrow up to 95 per cent LVR without paying LMI.
Why it matters for brokers
LMI can add tens of thousands of dollars to the cost of a loan. Brokers who know the waiver policies and the exact LMI premium grids at each lender can save clients significant money on high LVR deals.
Example in practice
A nurse earning $95,000 wants to buy a $550,000 unit with a $55,000 deposit. Standard lenders would charge LMI at 90 per cent LVR. Her broker identifies a lender offering an LMI waiver for healthcare workers at 90 per cent LVR, saving the client around $8,000 in upfront costs.
Related terms
Loan to Value Ratio (LVR)
The loan amount expressed as a percentage of the property value, used by lenders to assess risk on a home loan.
First Home Owner Grant (FHOG)
A state or territory based cash grant paid to eligible first home buyers purchasing or building a new residential property.
Guarantor Loan
A home loan where a family member provides their own property as additional security to support the borrower.
Stamp Duty
A state based tax payable on the transfer of property, calculated as a percentage of the purchase price.
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