Sydney’s property market boasts record-low interest rates and increasing consumer demand. These dynamics have led to home prices quickly outpacing the cost of Lender’s Mortgage Insurance (LMI), the lender’s ‘insurance policy’.
How much LMI you need to pay depends on anything from the size of the loan to the lender you choose, but the upfront costs can be hefty for buyers putting down less than 20%. In fact, you might pay more than $20,000 in premiums on a $550,000 home!
It’s worth looking into how LMI works, how mortgage brokers can help, and whether there’s a way to avoid paying if you don’t have unlimited savings for a downpayment.
The cost of the LMI premium is usually applied to any home loan with a down payment of less than 20% of the home’s purchase price. For the most part, all loans have LMI if you’re putting down less than 20%. However, there are a few exceptions.
Lenders may offer discounted LMI at different points throughout the year, particularly for first-time home buyers. These are usually offered through a mortgage broker though, and they tend to go off the market as quickly as they come onto it.
Below are two examples of offers for homebuyers from Shore Financial’s lenders. This should give you some indication of the variety of sporadic offers:
Lender A – $1.25mil @ 90% LVR NO LMI
Interest over three years based on current rates = $132,750.00
LMI = $0
Fees (upfront and ongoing) = $1,020.00
Total cost over 3 years = $133,770.00
Lender B – $1.25mil @ 90% LVR WITH LMI PROFESSIONAL PACKAGE
Interest over three years based on current rates = $108,000.00
LMI = $30,505.00
Fees (upfront and ongoing) = $1,185.00
Total cost over 3 years = $139,690.00
As you can see Lender A saves the customer in this instance $5,920 over 3 years.
It’s important to note that these offers may not be suitable for everyone’s current financial situation. If you want to discover a better-suited option, then get in touch with Shore Financial today.
90% No LMI home loan
For instance, if you were a well-paid doctor, accountant, or lawyer, your lender might allow you to borrow up to 90% of the property without having to pay LMI. In fact, some high-income earners can even borrow up to 100% of the property. This can wind up saving you thousands of dollars until you’ve built up at least 20% in equity on the home and if the new loan was for investment purposes the interest could be tax deductible.
There is no official guideline for waived LMI, and the offer can be extended to any high earner (e.g., optometrist, veterinarian, geologist, entertainer, etc.). It’s judged on a case-by-case basis. A lender will look at everything from earning potential to credit history to determine which terms to offer the individual borrower.
100% no LMI Home Loan
You also have the possibility of using a guarantor as a way to waive LMI. So if you had your parents guarantee the loan, you may be able to borrow up to 100% of the property value. Plus, you can include the purchase costs of the transaction (like stamp duty) without penalties.
No LMI for First Home Buyers
Finally, the First Home Loan Deposit Scheme is available for first-time home buyers. With this nationwide program, you can enter the property market with a deposit as low as 5% without paying for LMI. This is on top of the existing FHLDS program (available until 30 June 2021) which offers higher property price caps for new buyers.
There are other ways to get discounted LMI, depending on your individual circumstances. For instance, if you have another property, you might be able to use the equity from that home to augment your loan for the new property.
You can also look into different programs offered throughout the year. For example, there are single-parent discounts available. On 1 July 2021, the Single Parent Family Home Guarantee will support up to 10,000 single parents. The government guarantee on the loan allows eligible applicants to avoid LMI.
There are plenty of ways that buyers can avoid LMI or at least discount the overall costs. From first-time homebuyers to high earners to single parents, there are several categories that qualify.
Finding the right home loan expert can make it possible to get the information you need to apply to anything and everything you qualify for. There’s no advantage to giving anyone a penny more than you need to.
The right mortgage brokers in Sydney can go a long way toward helping you pay less on your loan.
Getting the right home loan advice can make all the difference. If you’re interested in learning more about the mortgage process or talking to a trusted expert, contact Shore Financial today.