Give LMI the eagle-eye and save thousands

By Nila Sweeney

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.