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How your job can get you an LMI waiver
Ever heard of the LMI waiver for professionals? Doctors and lawyers are just some of the occupations that can avoid lender's mortgage insurance with this clause.
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A lender's mortgage insurance (LMI) waiver for professionals could potentially save you thousands, even tens of thousands of dollars, when you decide to buy a home.
Here's how it works. When you take out a loan, you're generally required to pay LMI if you have a deposit worth less than 20%. Except if you work in a qualified, professional industry, that is.
If you’re a doctor, medical professional or work in specific finance industries, lenders will still consider you a low risk simply based on your income. Then, regardless of your history of savings or your deposit size, you can apply to be exempt from paying LMI.
LMI is a way that your lender can get protection, in case you default and are unable to pay back your home loan. Highly paid professions are less of a risk to lenders, as they feel that the chance of the loan being paid back is likely.
For this reason, lenders are willing to reduce the amount of LMI payable, or even waive it altogether, saving you thousands of dollars.
Which professions are eligible?
The professions that are generally eligible for an LMI waiver include:
- Lawyers and conveyancers
- Doctors and surgeons
- Veterinarians
- Accountants
- Dentists
- Engineers
- Financial planners.
To be eilgible, you generally need to be earning at least $150,000 a year. You also need to be a member of your industry's peak body or authority, such as the Australian Medical Association.
How much can you save in waived LMI premiums?
The following table shows an estimation of the hefty LMI costs associated with obtaining a home loan. Avoiding these costs can save you thousands of dollars on your home loan.
| LMI costs for a 5% deposit | LMI costs for a 10% deposit | |
|---|---|---|
| $300,000 loan | $8,008 | $4,077 |
| $400,000 loan | $13,984 | $7,056 |
| $500,000 loan | $17,480 | $8,820 |
| $600,000 loan | $23,954 | $13,284 |
| $800,000 | $31,939 | $17,712 |
These are estimates only, taken from Genworth's premium estimate calculator.
What lenders allow this and how can you get the discount?
A number of lenders offer these loans, including Auswide, Bank of Melbourne, St.George and Westpac.
However, many lenders will not offer these discounts up front. In fact, it may be harder for you to obtain this special discount by asking for it directly. It is suggested that you go through a mortgage broker – they know a few more ways to speed things up so you can take advantage of this special discount faster and with less hassle.
How you can save on LMI even if you’re not a doctor
But what about those of us who aren’t doctors, or are earning over $150,000 a year? No matter what your occupation is, you can still save on your home loan and LMI by:
- Getting a guarantor - Getting a guarantor can effectively reduce the amount you borrow and mean your deposit is greater than 20% therefore avoiding LMI. Even if they can’t guarantee the whole amount you could still pay less LMI.
- Borrowing smaller amounts - Obviously borrowing less means your LVR will be smaller, and therefore your LMI bill will be smaller or non-existent.
- Borrowing off family - While most lenders require at least 5 - 10% in genuine savings regarding your deposit, if your family can give you more in the guise of a gift you might be able to avoid LMI because your deposit is larger.
You also want to make sure you pay your loan off as soon as you are able to avoid ongoing interest and fees. You can do this by:
- Paying your loan off in weekly or fortnightly repayments – By making your repayments more frequently than once a month, you could reduce the life of your loan.
- Make extra repayments - Reducing the balance of your loan more frequently will reduce the amount of interest that is accrued, potentially saving you thousands of dollars in the long run.
- Use an offset account – An offset account allows you to reduce the amount of interest you pay on your home loan. For every dollar you put into your offset account, you reduce the amount of interest to be paid on the mortgage. This means you will have less to pay back and so you will be able to pay the loan off much faster.
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