Avoiding or Reducing Lenders Mortgage Insurance with an Experienced Mortgage Broker
Lenders Mortgage Insurance (LMI) is an insurance that you pay to cover the bank or lender against your risk. It is generally paid when the Loan to Value Ratio (LVR) is over 80%, so if you are borrowing over 80% of the value of the property. A common misconception is that it offers you some cover as the borrower, but it does not. It is a one-off fee that is paid to the lender to protect them. They have an insurer insure the loan and you pay the premium on their behalf.
LMI is calculated on a sliding scale. The higher the loan amount and the higher the percentage of lend, the higher the premium. An 86% LVR on a $500,000 loan may be close to $10,000. A 95% LVR on the same loan amount may be closer to $17,000. A 95% loan and a loan amount of $1,000,000 may be as high as $40,000.
When you are in “LMI territory” it is even more important to use the services of a Mortgage Broker. The Mortgage Broker compares more than just loan products and rates - we also need to compare the LMI premium as those costs vary between lenders. If you are borrowing over 80% of the value of a property, your Mortgage Broker will provide a comparison of lenders which will allow you to see the difference in the premium those varying lenders charge. This then gives you the option to pick a lender based on the LMI premium being substantially less. If you were to go to the bank directly, they are under no obligation to disclose to you if their premiums are higher than another lender, or if there is another lender that may not charge you LMI at all. It is crucial to be aware of the fact that some lenders do not charge LMI in cases where others do.
Some Ways to Avoid Lenders Mortgage Insurance
Lender Exemptions – Some lenders do not charge LMI up to 85% for First Home Buyers. There are even some Lenders that do not charge LMI up to 85% for any borrowers, even refinances. So, if you were to be between 80% and 85% of the value of the property you could save thousands or even tens of thousands by selecting a lender that has this policy. Again, your bank will not tell you this, so a Mortgage Broker is best to guide you through this process.
Industry Waivers – Some lenders will allow you to borrow up to 90% or even 95% if you are in an approved profession. These vary greatly between banks. Some are just for medical professionals, but some lenders will extend this to Accountants, Physios, Lawyers, Registered Nurses, the list goes on. It is always best to check. If your bank does not offer this or does not offer it to you, double check with a Mortgage Broker before paying LMI.
Valuations – The easiest way to avoid LMI is by getting a stronger valuation. If you are refinancing, buying a second property using the equity you have or buying off the plan it is essential to explore the options of valuations to see if you can avoid or reduce Lenders Mortgage Insurance. A Mortgage Broker may recommend a lender based on the valuation. For example, Lender A may have given a higher valuation than lender B, and this can again save tens of thousands of dollars.
In Australia last quarter, 7 out of 10 Mortgages were placed though a Mortgage Broker. Consumers are becoming aware that choice can save them much more money than an interest rate. Mortgage Brokers are bound by Best Interests Duty (BID) and we must compare and provide solutions in your best interest. Before you or someone you know pays Lenders Mortgage Insurance, please make sure you are getting a second opinion from a Mortgage Broker.
Here’s a recent example from a Sphere Home Loans client:
A client of ours was dealing directly with her bank. She is an Optometrist. Her bank had advised that they had a medical package, but Optometrists did not qualify so she needed to pay $8,000 in Lenders Mortgage Insurance. Before she proceeded, she reached out to the team at Sphere Home Loans to see if there were any other options. We placed her with a bank that did have Optometry in their package and LMI was waived for her 90% purchase. Listen to her review of her experience with us:
I was not aware of the no LMI (Lenders Mortgage Insurance) policy with my profession, Optometry. My current bank did not offer this to me. Rachelle took the time to find out more about my goals and went digging through multiple banks, to map out a plan and find the best loan for me. Danya
If you would like to investigate your options, please reach out to the Sphere Team.
It costs nothing to use our services and we act fearlessly on your behalf. To book an appointment please email hello@spherehomeloans.com.au
The Sphere Home Loans team