Lending Advice

Clients often ask us about Lenders Mortgage Insurance (LMI) and what it is. The easiest way to explain LMI is that it’s a premium charged by the bank when your home loan to value ratio (LVR) is higher than 80% (in most cases).

The higher the LVR, the more risk the bank is taking on meaning that they will charge more mortgage insurance. When you pay LMI it is typically capitalised into the home loan, which means that it isn’t an out-of-pocket expense. Paying LMI can assist you to get into the property market sooner as it means that fewer savings are required to buy the home. When LMI is paid on an investment purchase, it is also considered tax deductible. What must be considered when paying LMI is whether or not the premium will be able to be recouped after the purchase has been made by way of increase in the value of your home. If you are confident that the property being purchased will more than recoup the initial LMI outlay in a timely fashion, then it may be worth paying, especially if it allows you to get into a market that you feel may be moving quickly. However, some will be happy to continue to save and pay the minimum 20% plus costs deposit required to avoid paying LMI.

To discuss what best suits you, give us a call on 13000 ACTON or contact us here.