4 Things That Affect LMI Premium the Most

Posted on Jun 20 2018 - 1:00am by Business Day TV

Money on Top of Loan FormThe lender’s mortgage insurance (LMI) is a safety net for your lender in case you default on your home loan. In case of a forced property sale, this insurance protects the lender against financial losses if the sale price is insufficient to pay off the debt. It becomes a requirement when you intend to borrow more than 80% of the property’s assessed value.

LMI is just a one-off expense you would make at loan settlement. It may not protect you, but it allows you to buy one of the most sought-after house and land packages in Donnybrook or any promising Victorian suburbs. It helps reduce the risk to your lender, allowing you to borrow enough funds to buy your desired property without saving for a bigger deposit.

However, LMI costs vary from one borrower to another. To have an idea of how much you need to pay for it, think about these important factors:

1. Size of loan

The more money you borrow, the greater financial loss your lender can potentially absorb if you default on your mortgage. To make up for the risk of loaning you more funds, your lender will most likely charge you a higher LMI premium.

2. Amount of deposit

The cost of the LMI you have to pay reflects the size of your deposit. If you want to keep it low, raise a bigger deposit.

3. Use of property

Some lenders might consider your property a high-risk property if it’s not your primary residence. If you’re buying a house as an investment, you might be required to pay for a higher LMI premium.

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4. Employment status

Job stability affects the perceived risk of lending you hundreds of thousands of dollars. If you’re not a full-time employee or can’t prove that you have a stable income, you might be asked to pay for more LMI.

If you don’t want to pay for the LMI, consider finding a guarantor or continue saving until you can come up with a 20% deposit. But if time isn’t on your side, the LMI may just be a small price you have to pay to buy your dream house in a community you love soon.