LMI Protects The Lender – Not YouThis once-payable end non-transferable insurance premium protects the lender – not you. The premium is a safety net that covers any losses the lender may incur in the event of continued defaults that lead to a mortgagee sale. As a practical example, if you default on a home loan of $500,000 the lender will sell the property to recover their investment. In our example, if the lender only recovered $450,000 they’ll incur a shortfall of $50,000 that they’ll claim against the LMI insurance provider. However, the LMI provider may endeavour to recover that outstanding balance from you. Once again, LMI is insurance you’re paying on behalf of the lender, and it doesn’t protect you against defaults in any way.
How is LMI Calculated?LMI is calculated differently by different insurance providers so there’s no real one-size-fits-all approach. However, you can expect to pay a small premium for a lower LVR, and far higher rates for a higher LVR (up to 95%). For example, an LVR of 81% on a property up to $300,000 and below $500,000 might just be 0.475%, while the rate increases to 0.913% on loans over $750,000. For an LVR of 94% to 95% you may pay between 2.609% and 4.603% depending on your borrowing requirements. Factors built into the calculation includes the loan term, GST, various taxes, and the type of purchase (first home, package, or other). A stamp duty is also payable on the premium.
Calculate Your LMI PremiumThe calculator below is useful for returning a premium estimate that is likely to be applied to your home loan, when LMI is required. Please contact us for an accurate figure.
Stamp Duty on LMIStamp duty for LMI may or may not apply. The general schedule applied to the results above are based on the following values:
- VIC: 10.0% of the premium
- QLD: 9.0% of the premium
- SA: 11.0% of the premium
- TAS: 10.0% of the premium
- WA: 10.0% of the premium
- QLD: 9.0% of the premium
- NT: 10.0% of the premium
NSW: 9.0% of the premium(no longer applicable) ACT: 6% of the premium(no longer applicable)
LMI Premium LoadingsSince around 2012 some lenders will apply a loading to the LMI Premium based on various conditions, such as:
- No genuine savings. In this case a loading of between 0% to 30% may apply.
- Investment property as security may attract a loading of 12.5%.
- Refinance from another bank: 5%.
- Self employed customers: 10%.
Banks Versus Non-Bank Lenders - LMIPremiums from non-bank lenders tend to be higher than traditional first-tier banks. Much of the time it's because they apply their own self-insured risk fee. Contact us for more information.
Loan CapitalisationYou may usually borrow your LMI as part of your home loan, and this is called 'capitalisation'. The capitalised loan amount (as returned in our calculator) is calculated by adding the premium to your loan amount, and the capitalised LVR is determined by diving the capitalised value by your loan amount, and then multiplying by 100. Some lenders, such as Genworth, have a capitalised cap, meaning that they will not allow the LMI to be rolled into your loan amount when the LVR exceeds 97%. However, there are LMI insurers that will often increase the capitalised LVR to 98%. If the LMI capitalisation ceiling is exceeded it's possible you may pay a portion of the LMI to reduce your obligation to 97%.
Avoiding LMIThe easiest way of avoiding LMI is to have 20% of genuine savings (with 'Genuine Savings' often defined differently by different lenders). That said, LMI is a gateway into borrowing more for their ideal property, so it should be utilised when required. You may also choose to have a guarantor - somebody that essentially co-signs the mortgage and invests their own property as security. In securing a guarantor you may borrow up to 100% of the cost of a property which includes the property value and costs of completion. If LMI is required, or a rate is applied because of the LMI obligation, it may be a short-term nuisance. Once you have settled into your loan and demonstrated your ability to service your mortgage, or when the value of your property increases, you should be able to refinance into a product with a lower rate. Some occupations are exempt from LMI, or may pay a lower LMI premium. Such groups may include medical professionals, If LMI is required we'll help you source the least expensive LMI option and lowest available ongoing obligations.
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