Tips to Avoid Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance (LMI) is an added cost that many homebuyers want to avoid. Here are some effective strategies to help you eliminate or reduce LMI when securing a home loan.
1. Save a Larger Deposit
The most straightforward way to avoid LMI is by saving at least a 20% deposit of the property’s purchase price. A Loan-to-Value Ratio (LVR) of 80% or lower means lenders will not require LMI, saving you thousands of dollars.
2. Use a Guarantor Loan
Some lenders offer guarantor loans where a family member (usually a parent) provides additional security using their own property. This can help reduce your LVR below 80%, allowing you to avoid LMI altogether.
3. Take Advantage of Government Schemes
The Australian government provides initiatives such as the First Home Loan Deposit Scheme (FHLDS), which allows eligible first-home buyers to purchase a property with as little as a 5% deposit without paying LMI. Research current government schemes that might apply to your situation.
4. Apply for a Profession-Based LMI Waiver
Certain professionals, such as doctors, lawyers, accountants, and engineers, may qualify for an LMI waiver or discount with specific lenders. If you work in an eligible profession, check with lenders to see if you qualify for this exemption.
5. Negotiate with Your Lender
Some lenders may offer reduced LMI premiums or waive LMI in certain cases, especially if you have a strong financial profile or a high income. It’s worth discussing potential options with your lender or mortgage broker.
6. Consider a Smaller Property Purchase
If your deposit is close to 20%, you might consider purchasing a lower-priced property to meet the required deposit threshold. This could help you reach the 80% LVR target and avoid LMI.
7. Use Additional Savings or Bonuses
If you receive a work bonus, tax refund, or other windfall, consider putting it toward your deposit. Every additional dollar saved brings you closer to avoiding LMI.
8. Look for Lenders with Lower LMI Costs
LMI premiums can vary between lenders, so it pays to compare your options. Some lenders offer lower LMI rates, while others may have special promotions that reduce LMI costs.
9. Increase Your Borrowing Capacity
If possible, improving your credit score, reducing existing debts, or increasing your income can make you eligible for better loan terms, potentially reducing or eliminating LMI requirements.
10. Speak to a Finance Broker
A mortgage broker can assess your financial situation and recommend lenders or strategies to help you avoid or minimise LMI. They can also provide guidance on government incentives and lender-specific exemptions.
By applying these strategies, you can significantly reduce or eliminate the cost of LMI, helping you save money and get into your home sooner.
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