| Lenders Mortgage Insurance (L.M.I.) – Explained
L.M.I. is an insurance policy that your home loan lender takes out to protect themselves if you default on the loan.
Lenders Mortgage Insurance is normally dependent on your “loan to value” ratio. Put simply – Your deposit amount in relation to the property value.
You can easily calculate your LTV ratio.
Divide the total mortgage loan amount into the total purchase price of the home. (Eg: a home with a purchase price of $1m and a total mortgage loan for $800,000 results in a LTV ratio of 80%.
Other Risk Factors
Other risk factors that your lender may require Lenders Mortgage Insurance also include:
- If you don’t have proof of income
- Your employment history is not stable
- Your credit history is not perfect
- No savings record
- Your loan is a low doc loan
- You are a buying property off the plan
How to Avoid L.M.I
The best way to avoid lenders mortgage insurance is to have a deposit of 20 per cent or more of the property purchase price.
You may also be able to avoid paying lenders mortgage insurance if
- You can qualify as a “high quality” low risk borrower
- Have secure full-time full time employment
- Stable housing history
- History of genuine savings
- A clean credit file.
Lenders Mortgage Insurance is a cost that your lender will pass on to you. Usually as a one off fee when setting up your home loan.
The Upside of L.M.I.
There is an up side of Lenders Mortgage Insurance. By utilising Lenders Mortgage Insurance, you have the potential to purchase a home sooner with a lower deposit.
This may enable you to get into the housing market sooner, By doing so, the capital gains that you may make would outweigh the costs of lenders mortgage insurance. Some lenders may allow you to borrow up to 95% of the purchase price