Purchasing your first home is an exciting milestone, but the challenge of saving 20% for deposit – particularly if you’re also paying rent and navigating cost-of-living pressures – can feel like an impossible mission.
However, it’s important to not lose sight of your dream of home ownership, as there could be alternative options available to you. One such option could be to pay Lenders Mortgage Insurance (LMI).
In this article, we delve into the basic concepts of LMI and address some of the most commonly asked questions.
How does LMI work?
LMI is a type of insurance that a lender takes out to protect itself against the risk of a borrower not being able to repay their loan.
A lender will usually require LMI if you do not have a big enough home loan deposit saved (typically 20% of the property’s purchase price).
How much does LMI cost and how do you pay it?
The cost of LMI is calculated based on the amount of your home loan, the size of your deposit, the value of the property and the type of loan you apply for.
LMI can either be a one-off upfront premium payment or that premium could be included in the overall cost of the loan and included in monthly repayments. LMI is non-refundable and non-transferable.
What are the benefits of LMI?
If you meet all other lending criteria, paying LMI could allow you to apply for a home loan sooner and get you into your new home, without having a 20% deposit.
What happens if I can’t make my home loan repayments?
If you get into financial strife and can’t make your home loan repayments, and no other resolution is found, your property may be sold to cover the loan balance.
If the property sells for less than that amount, the lender will incur a loss and put in a claim to the LMI provider. The insurance provider will pay the lender this amount (in accordance with the LMI policy).
The LMI provider, or their debt collector, may then try to recover this amount from you, or any guarantors on the home loan.
What’s the difference between LMI and Mortgage Protection Insurance?
LMI covers the lender if the borrower defaults.
Mortgage Protection Insurance (MPI), on the other hand, can cover your home loan repayments for a period if you are made involuntarily redundant, or if you suffer from a serious medical trauma or illness that the policy covers. Additionally, it can pay off your home loan in the event of your death.
Like to know more?
There are many ways to reach the same destination, so if you’re looking to purchase your first home, speak to us about how to get your foot in the door.
Get in touch today and let’s run through what options could be available to you.
