How to avoid Lender’s Mortgage Insurance (LMI)

When buying a new property, the government’s stamp duty is not the only add-on cost the purchaser is faced with. 

Another cost is Lender’s Mortgage Insurance (LMI). This is a one-off fee to pay for insurance that covers the lender in case the borrower defaults on the loan. 

LMI is usually only charged when the borrower is borrowing more than 80% of the value of the property. This, especially in the case of young first home buyers, is obviously often the case. Even an average home at $400,000 would require a 20% deposit of $80,000. This is out of reach for many home buyers. 

So although it’s an added cost, it can be considered the friend of borrowers as it allows them to enter the property market with a minimum deposit. 

The only way you can avoid paying LMI is to save at least 20% of the value of the property as your deposit, or have someone act as the guarantor for the loan. 

If a family member guarantees the loan using their own property as collateral, the borrower can borrow more than the value of the property they are purchasing. This can help pay for other added on costs like stamp duty, or to pay for minor home improvements. 

Certain lenders specialise in these types of loans, contact Perry Finance now to find out which financial institutions can help with this sort of home loan.

Don’t forget, if the borrower defaults on the loan, the LMI only covers the bank. The borrower is still liable. If the borrower wants to cover themselves against liability, they need to also take out Mortgage Protection Insurance (MPI).