How to Avoid Lenders Mortgage Insurance (LMI)

In this blog, we explore strategies for Avoiding Lenders Mortgage Insurance to potentially reduce your overall mortgage costs. Lenders Mortgage Insurance (LMI) is a type of insurance that protects the lender if you, the borrower, can’t make your loan payments and the property is sold for less than the remaining loan balance. It’s crucial to know that LMI protects the lender, not you (or any guarantor). Even though the cost of LMI is typically passed on to you, only the lender can make a claim under this insurance. LMI can add a substantial cost to getting a home loan.

Avoiding Lenders Mortgage Insurance

Here’s How Avoiding Lenders Mortgage Insurance may reduce the overall cost of your mortgage.

1. Using a Guarantor

One of the most effective ways to avoiding lenders mortgage insurance  is by having a guarantor. A guarantor is usually a close family member who offers their property as additional security for your loan. This additional security can help you secure a home loan with a smaller deposit, often as low as 5% of the property value, without needing to pay LMI. 

2. Medical or Essential Services LMI Waiver

Certain professions are eligible for LMI waivers due to their perceived job stability and low-risk profile. Medical professionals, such as doctors, dentists, and veterinarians, as well as essential service workers like police officers and nurses, may qualify for this waiver. If you belong to one of these professions, it’s worth exploring whether you can take advantage of this benefit.

 

Explore Your Options to Save on LMI Costs! 

Want to see how these strategies could work for you?

3. Government Home Guarantee Scheme – First Home Buyer Guarantee

The First Home Guarantee Scheme is an Australian Government initiative to support eligible first home buyers purchase their first home sooner. The National Housing Finance and Investment Corporation (NHFIC) administers the Home Guarantee Scheme on behalf of the Australian Government.

Typically, first home buyers with less than a 20% deposit have to pay lenders mortgage insurance. However, under the First Home Guarantee, eligible first home buyers can purchase a modest home with a deposit as low as 5% (subject to lenders’ criteria). This is possible because NHFIC guarantees up to 15% of the property’s value to participating lenders for eligible first home buyers’ home loans.

4. Government Home Guarantee Scheme – Family Home Guarantee

The Family Home Guarantee (FHG) is an Australian Government initiative designed to help eligible single parents with at least one dependent child purchase a family home. Administered by the National Housing Finance and Investment Corporation (NHFIC) under the Home Guarantee Scheme, this program provides support on behalf of the Australian Government.

This initiative supports eligible single parents with at least one dependent child, provided they can service a loan. The Family Home Guarantee allows single parents to build a new home or purchase an existing one with a deposit as low as 2%, regardless of whether they are first-time buyers or previous homeowners. Investment properties are not eligible for this scheme.

5. Some Lenders Allow Borrowing Up to 85% No LMI

While most lenders require LMI for loans with a loan-to-value ratio (LVR) over 80%, some lenders offer products that allow you to borrow up to 85% of the property value without requiring LMI – NB they typically charge a premium rate. These products can be particularly beneficial if you have a decent deposit but don’t meet the 20% threshold to avoid LMI under standard lending practices. It’s essential to shop around and compare different lenders’ offerings to find a suitable loan product that meets your needs.

 

 Avoiding Lenders Mortgage Insurance

 

Final Thoughts

Avoiding Lenders Mortgage Insurance may save you a substantial amount of money, making homeownership potentially more accessible and affordable. By leveraging options like using a guarantor, seeking profession-based LMI waivers, and exploring government schemes, you can potentially avoid this additional cost. Always consult with a knowledgeable mortgage broker to understand which options are available to you and to ensure you make informed decisions in your home-buying journey.

If you have any questions or need personalised advice, feel free to reach out on 0438 790 608. 

FAQs

What is Lenders Mortgage Insurance (LMI)?

LMI is insurance that protects the lender if the borrower can’t repay the loan, and the property is sold for less than what’s owed. While it protects the lender, the borrower still pays for it.

Why should you avoid paying LMI?

LMI (Lenders Mortgage Insurance) adds extra costs to your home loan, making it more expensive. By avoiding LMI, you can save money and make homeownership more affordable. A mortgage broker can help you find ways to skip LMI and reduce your costs.

How can using a guarantor help me avoid LMI?

A guarantor, usually a family member, can back your loan, giving you extra security. This allows you to get a home loan with a smaller deposit (as low as 5% of the property’s value) without having to pay LMI.

Who can get an LMI waiver based on their job?

Certain professionals, like doctors, dentists, vets, police officers, and nurses, might not have to pay LMI because their jobs are seen as stable and low-risk. A mortgage broker can help you check if you’re eligible.

How does the First Home Guarantee Scheme help avoid LMI?

This government program lets eligible first-time buyers purchase a home with as little as 5% deposit without paying LMI. The government guarantees up to 15% of the property’s value to the lender.

 

Disclaimer: This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.

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