3 must-knows about LMI for home buyers
Lenders Mortgage Insurance can be used as an option to help home buyers get into the market – but it's not the only option.
This article is sponsored by Ubank. This article is sponsored by Ubank. Ubank offers home loans with no LMI, designed to cater to first home buyers, investors and refinancers. To find out more, visit Ubank online today.
If you've been in the process of looking for a property or applying for home loans, you've probably heard the expression LMI, which stands for "Lenders Mortgage Insurance".
But you might not be aware of what Lenders Mortgage Insurance is, how it's used or even why you need to know about it.
It can be useful when you're looking to get onto the property ladder. But it can also be an additional cost, at a time when you want your money to be working hard for you. With this in mind, we're taking a closer look at the essentials you should know about LMI and when it's needed.Learn
How does LMI work?
The main way that LMI works is by providing an insurance policy to the lender that's offering you a home loan.
In the event that you default on your home loan and the property needs to be reclaimed or sold to cover the lender's costs, lenders mortgage insurance provides the lender with a safety net.
Although you might assume from the expression "insurance" that it's the borrower being protected, this isn't the case.
The borrower is instead required to absorb the cost of this insurance, which can be built into the mortgage repayments, or paid as an upfront cost.
So when would LMI be required in the first place?
If you have less than a 20% deposit saved for your home, you may be considered a higher-risk prospect for lenders.
The good news is that there are alternatives – we'll take a look at some of them in a moment.
You can also read more about LMI right here on Finder.
When do you pay for LMI?
The main reason buyers will pay LMI is because they have a lower deposit saved. Although it adds extra cost, LMI may enable some buyers to borrow with a smaller deposit and enter the property market sooner. Here are some of the situations where it may apply.
- A low deposit: Having less than a 20% deposit saved doesn't necessarily mean you're not able to afford home loan repayments. Some buyers are willing to make the sacrifice for paying slightly more in the short term via LMI in order to fulfil a dream of home ownership or property investment.
- Getting on the property ladder sooner: Sometimes, a dream property can come your way unexpectedly. You might not have as much saved as you'd like, or be able to draw on as much equity as you'd prefer. Some buyers see LMI as a means to take advantage of these opportunities by choosing a loan that requires LMI, even if it comes at an additional upfront cost.
Everyone's financial circumstances are different. It may be worth speaking to a financial professional before making a decision to take out a home loan.
Additionally, paying LMI isn't necessarily compulsory. Some lenders, like Ubank, offer low deposit home loan options without Lender's Mortgage Insurance. Let's take a look at an alternative in the next point.
How can I avoid LMI?
There are two main ways to avoid LMI when taking out a home loan.
The most common way is to save a deposit of 20% or more of your desired property's purchase price. At that threshold, LMI is not required by most lenders.
This can be easier said than done in the current housing market, but it's important to remember that saving for a longer period can sometimes be a valid option.
The second option for avoiding LMI is to choose a lender like Ubank that doesn't charge LMI even with a lower deposit.
In the case of Ubank, if a borrower has a deposit of 10% or more, they could borrow with Ubank and avoid LMI completely while buying with even half of the standard deposit requirement. Choosing an option like this can potentially help you avoid higher upfront costs, and help you to purchase property when an opportunity presents itself. Remember to consider the overall cost of the loan, including the applicable interest rate.
Home Loans with Ubank
Everyone's dream home is different. So Ubank has a few home loan options to choose from, all with low fees and flexible features to help you get ahead.
Features include:
- Loans to suit new owners, investors and refinancers.
- No LMI on home loans, including purchases with a 10% deposit.*
- Multiple offset accounts on Flex variable loans.
- Fee-Free redraw on extra repayments available.^
- Support before, during and after the loan application process from an Aussie-based customer team
To find out more, visit Ubank online today.
Learn more about home loans with Ubank
This article is sponsored by Ubank. This article is sponsored by Ubank. Ubank offers home loans with no LMI, designed to cater to first home buyers, investors and refinancers. To find out more, visit Ubank online today.
Key takeaways
- LMI is an additional charge that is sometimes required to be paid when you have less than 20% saved for a home loan deposit.
- Some borrowers choose loans that require LMI so they can get on the property ladder sooner, but the overall cost vs long-term benefits should be carefully considered.
- Ubank home loans don't charge LMI, including eligible purchase loans with a 10% deposit.
*85%-90% LVR is available for new purchase loans with loan terms up to 30 years repaying P&I. Max loan amount is $2M per application.
^ For fixed rate loans, additional repayments and redraw at no extra cost are limited up to $20,000 during the fixed term. In limited circumstances, Ubank can cancel or suspend your right of redraw.
Products issued by Ubank, part of NAB. Credit criteria apply. TMDs at ubank.com.au
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