Understanding Lender’s Mortgage Insurance Policies
As a rule, if you don’t have a 20% deposit in savings, then your bank will ask you to pay Lender’s Mortgage Insurance (LMI) when you buy a home. This is why so many of us need to dutifully save up our 20% deposit to buy our first home.
If you don’t then you have to pay LMI which is usually added to the amount borrowed – meaning you have to pay interest on the premium. I.e. make higher repayments – which can run into the thousands of dollars over the life of the loan.
Borrowing more than 80% of the property value also generally means you will pay a higher interest rate on your home loan. These days, lenders price the loans based on risk. The higher the percentage of the property value you borrow the higher the perceived risk and therefore the higher the interest rate. This is why so many people advise against buying a home if you don’t have a 20% deposit.
Some financial experts will debate the merit of this, arguing that the gains the market has made over its recent history mean the increase in property values will more than offset the extra costs of LMI. They do advise you to refinance as soon as the property value increases enough so your equity is 20% of the property value so you can potentially obtain a lower interest rate.
With the markets where they are right now, it’s not going to be as sure a thing. You need to do your due diligence if you think that is going to be as sure right now.
Some Borrowers are at Lower Risk Than Others.
Banks are smart, really smart risk managers. They realise there are professions out there that are so short of workers that if you work in that field, then you are going to never be short of a job. If you are a Medical Practitioner, Specialist, Dental Practitioner, Accountant, Lawyer, Legal Professional, Optometrist, Physiotherapist, Chiropractor, or Veterinarian then you may be able to buy a home with a 5% or 10% deposit and not pay Lenders Mortgage Insurance.
Similarly, they’ve just added Registered Nurses and Midwives to the list. They will waive LMI if you have a 10% deposit, the only caveat is there are minimum income requirements. You need to earn $90,000 a year including overtime in order for banks to waive their LMI.
Not only can you potentially save tens of thousands of dollars in LMI if you work in one of these professions some lenders will also offer you interest rates that are normally reserved for borrowers with a 20% deposit. So you don’t pay LMI and you get a lower interest rate!
Even if you are not working in one of these professions, there are lenders that may lend up to 85% of the value of a property and not charge Lenders Mortgage Insurance. The interest rates are generally higher for this type of loan.
If you are a Medical Practitioner, Specialist, Dental Practitioner, Accountant, Lawyer, Legal Professional, Optometrist, Physiotherapist, Chiropractor, Veterinarian, Registered Nurse Or Midwife then you could buy a home today with a deposit of either 5% or 10% of the purchase price and NOT have to pay LMI. There are a few lenders out there offering deals like this so call 1300 661 211 or enquire online at https://www.mortgageworldaustralia.com.au/contact-us/ and we will explore how you can make your dream of owning a home a reality even if you don’t have a 20% deposit.