This insurance enables home buyers to access loans with a smaller deposit, typically less than the standard 20% required by most lenders, so you can own your home sooner. Lenders Mortgage Insurance (LMI) plays a crucial role in the journey to homeownership by protecting lenders in the event that a borrower defaults on their mortgage and the proceeds from the sale of the property are insufficient to cover the outstanding loan balance.
Buying your home sooner with LMI
LMI directly benefits you by making it easier to access competitive interest rates and favourable loan terms. Without LMI, lenders might hesitate to approve a loan with a smaller deposit due to the increased risk. With LMI in place, you gain the confidence to pursue your homeownership dreams without the financial burden of a large upfront deposit. One of the primary benefits of LMI is that it allows you to purchase a home sooner. LMI lets you secure a loan with as little as 5% of the property's purchase price, which can be greatly advantageous as compared to the full 20% usually required. This means you can stop paying rent and start building equity in your own home sooner rather than later.
Understanding the cost of LMI
The cost of LMI typically ranges between 1% and 2% of the loan amount, although this can vary based on factors such as the size of the deposit, the type of loan, and the value of the property being purchased. This fee is a one-time payment that can be added to the loan amount or paid upfront, depending on the borrower's preferences and financial situation.
While LMI protects the lender, the cost is ultimately borne by you, the borrower. This cost-sharing arrangement allows you to explore different payment methods that suit your financial situation. Additionally, family members can contribute to the LMI cost to support your journey to homeownership, without needing to risk their assets as guarantors.
Refunds and flexibility
In certain circumstances, partial refunds of the LMI fee may be available within the first two years of the loan term, particularly if the loan is refinanced or paid off early. This provides a degree of financial flexibility for borrowers who may experience changes in their circumstances or who wish to renegotiate their loan terms.
Summary
Lenders Mortgage Insurance serves as a vital tool for both lenders and home buyers alike, facilitating access to the property market with a smaller initial deposit and offering financial protection in uncertain times. Whether you're considering your first home purchase or exploring refinancing options, understanding LMI can empower you to make informed decisions about your financial future.
Whether you're saving for a deposit, seeking home loan pre-approval, or just need support navigating the process, we're ready to help you make your move. Speak to a mobile lender, enquire online, or contact us.
Source: Helia
