Found a home you love but don't know if you're in a position to secure the finance you need? You should speak to your broker before you walk away…
Many Australian’s presently share the frustration that with the cost of living ever on the rise, their ability to save a deposit is becoming more difficult. Added to this is the instability of the economy brought on by COVID, meaning taking the leap into becoming a homeowner seems at times like a decision that should be delayed.
Fortunately, there are possible solutions at hand. Talk to your mortgage broker about Lenders Mortgage Insurance (LMI). Not to be confused with mortgage protection insurance (which is designed to protect the borrower), LMI is insurance that covers the lender’s risk in the event that you default on your mortgage. LMI is paid by the borrower when the loan value is greater than 80 percent of the purchase price of the property.
The cost of the premium is dependent on 3 main factors; the amount you are borrowing, how high the loan to value ratio is, and who your lender is. We have found that at certain loan amounts there can be a very significant difference between the LMI premium you’ll pay at one lender compared to another. Surprisingly in some of our recent cases, taking a higher interest rate at an alternative lender could save you more over the relative life of the loan. While LMI is a one-off fee, there could be thousands of dollars difference between lenders.
While LMI is a one-off fee, there could be thousands of dollars difference between lenders.
Do I have to pay LMI?
If you need to borrow more than 80 percent of the property price, you really have no choice but to pay LMI. While it may appear exclusively favourable to the lender, there is value to borrowers in paying LMI.
1. LMI is an opportunity cost that allows you to move on a property purchase much sooner. After all, it could take you many months to come up with even just another 5%, but during this time the property market in your area could increase by 5%, meaning you may need even more deposit.
2. Top ups are cheaper. Once LMI is paid, you can borrow back to that loan to value ratio at minimal cost. For example, in 5 years time, in the event that the house has gone up in value and your loan has been paid down, you could borrow back to 90% of the property value for some home renovations and pay little to no LMI. This is because the original debt is deemed to be LMI paid, so you only have to pay LMI on the top up.
3. More bang for your buck. LMI can be tax deductible when paid on an investment loan. It’s vital you check with your accountant first, this too could make your equity and savings go further.
The major benefit of LMI is that it allows the dream of homeownership to become a reality for a lot of first home buyers. To see if this is the case for you, feel free to contact us today.
image credit: Studio McGee
Astute Financial Management Pty Ltd | ACN 093 587 010 | Australian Credit Licence 364253 | Davgan Insurance & Wealth Pty. Ltd. T/As Astute East Brisbane Corporate Authorised Representative (425641) of Alliance Wealth Pty Ltd | ABN 93 161 647 007 | AFSL 449221. www.centrepointalliance.com.au/aw | General Insurance provided by Astute Insurance Pty Ltd | ABN 59 622 582 236 | Authorised Representative of Ausure Pty Ltd ABN 94 096 971 854 AFSL 238433. Health Insurance products are underwritten by St Luke’s Medical and Hospital Benefits Association ACN 009 479 618 (St.LukesHealth), a registered private health insurer, [trading as Astute Simplicity Health] and members are introduced by Astute Financial Management Pty Ltd or related entities (collectively known as Astute) for which Astute receives a commission.
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