Ever heard of Lender’s Mortgage Insurance (LMI)? Baffled by just exactly what it does? Home loan comparison s mortgage brokers Sydney explain below.
Basically, it’s insurance that you have to have (generally) if you’re borrowing more than 80% of the value of the home – and you pay for it, although it protects your lender and not yourself.
Already outraged? Here’s how to look at it, it’s a tool to get you in the property before you would otherwise be able. And if you look at it this way it’s actually pretty cheap.
What do I mean – well, if you are borrowing 85%, say, on a $330,000 property the mortgage insurance is around $2,495. But if you had to save the extra 5% deposit in a rapidly moving market the property could quickly rise in value by far more than that amount. In the area local to me right now the last 6 months has seen at least a $50,000 increase in prices in that bracket – how long would it take you to save the $14,000 needed vs the change in price (and then you’re chasing even more money).
The flip side of this of course is that for your investment of around $2,495 you then benefit from the future gains.
It’s important to note also that this is not an annual fee, it’s once off whenever you borrow more than 80% of the property. So you may pay it now and never again, or, if you need to top it up it may be just a small increase.
Now, that’s a simple example (one that happens to be on my desk right now) but mortgage insurance can be a lot more expensive than this and it can also vary from one lender to another. This is where your mortgage broker can compare the lenders, their policies and their insurers to see what works best for you (and unfortunately your bank doesn’t generally have this range for you.)
There are also other strategies for avoiding mortgage insurance, ask me about that wont you?
One of Australia’s biggest mortgage insurers has compiled a few case studies to make you feel a little more warm and fuzzy about this mortgage insurance, take a look at https://www.genworth.com.au/lmitoolkit/
and of course, happy to discuss it all with you.