Lender’s Mortgage Insurance (LMI) can be a huge cost, particularly for property investors who generally look to borrow as much as possible.
So those property investors who get the ‘low-down’ on LMI can potentially save thousands.
Many people get caught out by LMI, which typically works on a multiple of the loan amount.
Where people are borrowing up to 80% of the LVR (loan to value ratio, or value of the property), they don’t usually need to pay an LMI premium. However, once the LVR is more than 80%, the LMI premium kicks in.
Importantly, LMI premium rates also differ depending on the amount you borrow, as well as the lender and product you choose.
Up to $300,000, the LMI premium rates are significantly less than the LMI premiums applied to loans in the $301,000 to $500,000 range.
For example, let’s say you decide to buy two properties for which you borrow $300,000 for each at an LVR of 95%. Most people would take out a loan for $600,000. At 95% LVR, you would be paying a LMI premium of $16,644.
However, in some circumstances it could make a big difference to fund the purchase with two separate $300,000 loans – still at 95% LVR.
When it comes to calculating the LMI premium rate for these two loans, the cost could decrease to as low as $9,120 – that’s a saving of more than $7,500. It’s the same properties and the same security – the loan is, simply, structured differently.
With all the mystery around how LMI works, the advice and guidance of an experienced mortgage adviser can be invaluable.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan