Lenders’ mortgage insurance, also known as LMI, is one of the much-maligned costs associated with taking out a home loan as it can easily add thousands of dollars when buying a property.
Add this to the fact that LMI solely protects the lender, and it is understandable why many home buyers want this cost waived.
But did you know that you can potentially save a huge amount of your hard-earned cash just by being a member of a certain profession? Find out below how some professionals can dodge the hefty expense that comes with lenders’ mortgage insurance.
Why do lenders require lenders’ mortgage insurance?
Lenders require LMI if the amount being borrowed is more than 80% of the property’s value. Their belief is that the risk of borrowers defaulting on their loans is higher for those who pay less deposit as their monthly repayments would also be higher compared to those who can pay a larger deposit.
LMI providers also conduct background checks to see if a borrower can afford to make monthly repayments. This gives lenders an assurance that the borrower can take on the financial responsibility of buying a home.
How is lenders’ mortgage insurance calculated?
Each insurer calculates LMI premiums slightly differently. The cost varies depending on the size of the loan, deposit amount, loan type, and borrower’s employment status.
Our LMI calculator can help you work out how much you will be paying over the course of your mortgage.
Who can access lenders’ mortgage insurance waivers?
LMI providers are generally willing to lend more money to people in high-demand and well-paying professions. Doctors, dentists, and lawyers, for example, are considered low-risk borrowers and may even be eligible for an LMI waiver. If you are member of the following professions, you may be able to access a waiver for this cost.
1. Medical professionals
If you are a doctor, you can have LMI waived for loans of up to $4.5m at 100% of the property’s value as long as you are a member of an accepted industry organisation such as the Australian Medical Association (AMA). It also pays to be on the list of “preferred medical professionals,” – which includes surgeons, dentists, optometrists, pharmacists, chiropractors, and veterinarians.
2. Legal professionals
Legal professionals must be a member of a relevant organisation to qualify for an LMI waiver. If you are a solicitor, judge, barrister, or lawyer, and earning at least $150,000 annually or will be reaching this salary range soon, rental income included, then you may be eligible for an exemption. The maximum loan limit is $2m and this should not be over 90% of the home’s purchase price.
Just like legal professionals, accountants can avoid paying for LMI for loans not exceeding $2m and 90% of the property’s worth. But you must hold membership in a relevant industry body. Eligible professionals include actuaries, auditors, financial managers, and chief financial officers, with a yearly income of $150,000 or higher. Your rental income will also be considered.
4. Mining specialists
One of the highest-earning professions in Australia, specialists in the resource, energy, and mining industries, including geophysicists, geologists, quantity surveyors, and mine surveyors, can waive the LMI for loans amounting to $2m at up to 90% of the property’s value. But you should be earning at least $150,000 in yearly income.
5. Professional athletes
If you are a professional athlete, you should have an accredited agent or manager to qualify for an LMI waiver. Your home loan should not exceed $2m and 90% of the home’s worth and your annual income should also not be below $150,000.
6. Entertainment industry professionals
Professionals working in the fashion, theatre, film, television, and music industries who are earning at least $150,000 every year can have the LMI waived as long as the maximum loan amount is not over $2m and 90% of the property price.
However, meeting the above-mentioned requirements does not automatically qualify you for an LMI waiver. Most lenders require borrowers to have a clean credit history, regardless of their profession.
Why do some professionals qualify for LMI waivers while others do not?
If you are among the people in the listed professions, lenders will view you as a low-risk borrower because you are a high-income earner. Lenders will see you as having the ability to afford borrowing large sums of money, make payments on time, and rarely default on their payments.
Additionally, high-net-worth professionals often belong in a circle of other high earners in their fields. A positive experience with a lender can result in a recommendation to another co-worker. This benefits lenders as it allows them to pad their network of low-risk and high pay-off customers.
But what if you are not a doctor, lawyer, or accountant?
Not belonging to these high-earning professions does not necessarily mean you have to pay lenders’ mortgage insurance. There are still ways to avoid it.
The best way dodge paying for LMI is to save enough for a 20% deposit. This amount might be bigger than the actual LMI cost but if you have already been saving and are close to the target amount, then this cost should not be a concern.
Another way is to get a guarantor. They can be your parents or guardians, but since they will be securing their homes against your home loan, it is crucial for you to stay on top of your repayments.
First-home buyers can also apply for the First Home Loan Deposit Scheme (FHLDS), which grants eligible borrowers a special government guarantee that waives LMI fees for as low as 5% deposit. If you are a single parent, you can access the Family Home Guarantee that can help you purchase a home with as little as 2% deposit.
Collections: Mortgage News