How to avoid paying LMI

23/10/2019

Lender’s Mortgage Insurance (LMI) is required in many instances when a loan is worth more than 80 per cent of a property’s purchase price, as well as in some other circumstances.

In very basic terms, when a lender considers a loan to carry a high risk, LMI is likely payable. Here’s how you can avoid paying the costly premium.

Save for a higher deposit
The purpose of LMI is to protect lenders in case the borrower fails to make repayments and, when the loan-to-valuation ratio (LVR) exceeds 80 per cent, so the loan amount is more than 80 per cent of the value of the property being mortgaged, the risk of a lender not recouping their costs should the borrower default is increased. A higher deposit means a smaller loan amount, so will decrease the LVR and the perceived risk, and may be the key to avoiding paying LMI.

Get a guarantor
If you don’t have the financial capacity to meet a 20 per cent deposit but still want to avoid LMI, you do have the option of getting a guarantor on your loan. Normally a close relative, such as a parent, guarantors can use the equity in their property to help you secure yours. In some instances, having a guarantor on your loan may mean that you won’t need a deposit at all.

Take advantage of professional benefits
Although special offers based on the borrower’s profession are not limited to medical professionals, doctors are the big winners when it comes to waived LMI fees. Due to the perceived stability and high income, some lenders consider professionals earning a minimum of $150,000 a year as ‘low risk’ borrowers and therefore offer them special loan benefits.

A little insider knowledge from KLM finance will go a long way in helping you find a loan that won’t require you to fork out for LMI.

Neil

24/10/2019 10:32:25 am

Hi,
Just wondering about LMI.
Is it a product that is calculated for the life of the loan, or for the projected period of time the loan amount will remain above the 80% of the total purchase price of the property?
As with other insurances (such as gap insurance), it is often possible to cancel the policy when the value of the insurance is no longer going to provide a positive (i.e., their is no longer a gap between replacement cost and amount owed) and recoup a few hundred dollars. With a property, if the purchase price was $480k with LMI of around $5800, when the amount owed got to say $395k, would their be any refundable portion of the LMI, or would this have only been calculated on the $85k that tipped the loan into the above 80% threshold requiring LMI?
Hope this makes some sense. :-)

Kerry McKenzie link

15/1/2020 03:44:46 pm

Sincere apologies Neil on overlooking your comments/questions and the questions make perfect sense. LMI is a once off premium and paid upon settlement. Some Banks let you add the premium on top of your loan however at any point in time when your loan represents 80% of the value of the property you don't get a refund.
While LMI premium is generally not refundable, depending on the arrangement between the lender and the LMI provider, you could be entitled to a partial refund of the LMI fee if the following occurs:
> Loan repaid within 12 - 24 months
> The lender must notify the LMI within 30 days loan has been repaid
> Loan was not in arrears
> Refund amount must be more than $500

Please note the above is subject to change and not all lenders will refund.

Alex link

8/1/2020 02:10:57 pm

great article, very helpful for first time buyers especially.

Kerry link

15/1/2020 03:33:53 pm

Thank you for your feedback Alex and glad the information is helpful.

Ingrid M link

26/6/2022 03:38:15 am

This was a lovvely blog post

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How to avoid paying LMI