Home buyers with low deposits can save thousands in LMI premiums with these lenders
At least 3 lenders now offer big discounts on lenders mortgage insurance premiums that could save first home buyers thousands.
Australian home buyers with deposits below 20% get stung by an extra cost most people have never heard about: Lenders mortgage insurance (LMI).
LMI premiums, which can cost you thousands or even tens of thousands of dollars, exist to protect your lender from the increased risk of lending to a borrower with a low deposit. But with several lenders now offering discounts on LMI the savvy low deposit borrower can save themselves a lot of money.
Here are the discounts on offer.
St.George – $1 LMI with a 15% deposit
Normally you need a 20% deposit to skip LMI completely but St.George will drop it to a single dollar if you have a 15% deposit.
If you were buying a $600,000 home then a 20% deposit would be $120,000. A 15% deposit is only $90,000.
Using an LMI premium estimate calculator and the example above, a borrower with a 15% deposit would have to pay $6,463 in LMI premiums.
With St.George's offer, you'd only pay $1.
There are some restrictions. You need to be buying a home, not an investment, and your loan needs to have principal and interest repayments. The offer is capped to a maximum loan amount of $850,000 (so, a $1 million property).
Virgin Money – $0 LMI if you have a 15% deposit
Borrowers taking out a new Virgin Money mortgage can pay no LMI at all with a 15% deposit saved.
The offer is only available for homebuyers with principal and interest repayments.
Using a similar example to the one above, if you bought a $500,000 home with a 15% deposit ($75,000) you'd be looking at LMI premiums of $4,712.
Virgin Money's offer would save you that entire amount.
ME Bank – 25% LMI discount on the Flexible Home Loan
Eligible first home buyers who take out an ME Bank Flexible Home Loan with a deposit under 20% can get 25% off their LMI premiums. You still need at least a 5% deposit and there's a maximum loan amount of $1.2 million.
Let's say you were buying an $800,000 home with a 10% deposit of $80,000. You'd be looking at a premium of $17,712 (according to Genworth's estimate calculator).
A 25% discount would save you $4,428.
Keep in mind that we're using LMI insurer Genworth's premium estimates here, but ME Bank uses a different insurer, so the actual cost will differ.
More ways to save on LMI
There are other ways Australian borrowers can skip on LMI. The most notable way to avoid premiums is through the federal government's First Home Loan Deposit Scheme.
Under this scheme, a limited number of eligible borrowers can get home loans with 5% deposits saved. The government guarantees the remaining portion of your deposit up to 20%, allowing you to avoid LMI.
The scheme operates in partnership with certain lenders and there are property price limits as well, which vary from city to city and region to region.
If this isn't an option but you have parents who own their own property and are willing to help, you have another option. A parental guarantee allows you to get a loan with a low deposit and avoid LMI.
By having a home loan guarantor your lender regards you as a less risky borrower. Of course, if you can't repay the loan then your guarantor might have to, so it's not without risk.
Finally, some lenders waive LMI for borrowers in particular professions. Doctors, for example, are seen as a very safe bet. Accountants who are CPAs may also be able to avoid LMI. Every lender has their own policies regarding LMI waivers and it's always worth asking.