When you borrow more than 80% of a property’s value most lenders will charge you Lender’s Mortgage Insurance (LMI).
Now – the easy mistake to make with LMI is to feel that it offers you, the person taking out the mortgage, some sort of protection or insurance. Sadly, that’s not what it’s for. Plain and simple: that policy is there to protect the bank and it’s because, borrowing over 80% makes the bank feel as though you’re a higher risk.
Borrow 80% or under of the property’s value (usually what a valuer or automated valuation tool says it’s worth OR the contract price – whichever is the lesser) and no lender’s mortgage insurance.
Borrow over 80% and you’ll pay a lender’s mortgage insurance policy which is scaled – so the higher over 80% you’re borrowing the more you’ll pay.
The two major providers of lender’s mortgage insurance in Australia are Genworth and QBE – and typically needing lender’s mortgage insurance also means that one of those provider’s will need to sign off on your application. This may add another 48 hours to your application time frame dependant on lender (some lender’s can sign off on their own LMI). Some lender’s don’t use an external LMI provider and may instead charge you an internal “Risk Fee”.
You can pay for your lender’s mortgage insurance up front, or usually it’s capitalised into the loan (note – putting into the loan which most people do means you also have to consider that you’re paying interest over the term of your loan)
Lender’s mortgage insurance is not an ongoing policy, it’s paid only once at settlement. As your broker we will calculate lender’s mortgage insurance where appropriate, but it can vary slightly so this is an estimate only. Here’s a calculator that you can use to run your own estimate https://www.genworth.com.au/online-tools-forms-and-reports/lmi-tools/lmi-premium-estimator
You can avoid paying LMI by saving a 20% deposit + costs, using a guarantor or getting a gift to push your savings up to that required level. And some professions such as doctors, lawyers, dentists, vets can pay no LMI up to 90% of a property’s value.
If you have questions, we’re happy to help answer them.
Kirsty