Navigating the complex housing market landscape is not easy for many Australians, and for the first home owners it could be daunting. One significant problem many prospective home buyers are facing is extra thousands of dollars expenses on lenders mortgage insurance (LMI). This gives another substantial financial burden for new home buyers especially those with small deposit amounts.
However, a promising solution exists in the form of the NO LMI (Lenders Mortgage Insurance) scheme in Australia to offer a lifeline to first-time homebuyers. Those seeking to enter the property market but stuck with savings could get a way to own their own home. The NO LMI scheme serves as a beacon of hope by eliminating Lenders Mortgage Insurance for eligible borrowers.
What is LMI? And why LMI?
Lenders Mortgage Insurance (LMI) itself indicates that it is an insurance to protect lenders in a mortgage agreement. This typically protects lenders when borrowers have a deposit that falls below 20% of the prospect property’s value, to transfer the potential risk of default from the borrower to the lender.
Though this has a pivotal role to make people eligible for home ownership, not everyone is eligible for the NO LMI scheme. There are some occupations and conditions banks in Australia offering LMI free home loan options. Specially in Nepalese community health sector workers including doctors and nurses are seems to be getting benefit from this scheme. But, they are not the only, there are other options and ways available to save money in LMI while purchasing a first home.
Six tips to save money on Lenders Mortgage Insurance
Saving on lender’s mortgage insurance (LMI) is a smart financial move for many homebuyers. Here are six tips to help you reduce or avoid LMI:
Utilize Government Home Guarantee Schemes
If you’re a first-time homebuyer in Australia and qualify for government-backed home guarantee schemes like the First Home Loan Deposit Scheme or Family Home Guarantee, you can access your home loan with a lower deposit, reducing or even eliminating the need for LMI.
Explore Professional Packages
Some lenders offer special packages for specific professionals like health professionals, lawyers, accountants, mining engineers, and emergency service workers. These packages may include reduced LMI rates as part of their benefits.
Gift Money from Family
Consider asking family members for a gift of money to assist with your deposit. A larger deposit can help you avoid or minimize Lenders Mortgage Insurance costs, as the LMI-premium is typically calculated as a percentage of the loan amount in relation to the deposit.
Use a Guarantor
If you have a family member who is willing to act as a guarantor, you may be able to avoid Lenders Mortgage Insurance altogether. A guarantor provides additional security for the loan, which can result in a lender waiving the requirement.
Increase Your Deposit to 9% or 12%
Lenders often charge lower Lenders Mortgage Insurance premiums when you have a deposit of 9% or 12% of the property’s purchase price, as this indicates a lower loan-to-value ratio (LVR). By saving for a larger deposit, you can reduce your Lenders Mortgage Insurance costs.
Shop for Lenders with Competitive LMI Rates
Different lenders offer varying LMI premium rates. It’s advisable to compare lenders and their LMI-rates to find the one that offers the most competitive terms. You can consult with a mortgage broker to help you identify lenders with favorable Lenders Mortgage Insurance options.
Remember that while these tips can help you save on LMI, it’s essential to consider your overall financial situation and the specific requirements of your lender. Additionally, the rules and availability of certain schemes may change over time, so it’s a good idea to stay informed about the latest developments in the mortgage and home buying landscape.
With input of Navin Yadav, Mortgage Consultant, Capital Connections Finance, Adelaide.
