How much is lenders mortgage insurance?
If you are looking to borrow more than 80% of the purchase price of a property, you will probably have heard about lenders mortgage insurance (LMI). LMI is designed to protect the lender in the event of a default by the borrower. So how much is lenders mortgage insurance? It depends on a variety of factors, including how much you are borrowing, the loan-to-value ratio, and the type of loan you are seeking.
Do I need to have LMI?
In Australia, you usually need to have LMI if you are borrowing more than 80% of the purchase price of the property. This rule can vary depending on the lender though, and your personal circumstances. For example, if you are self-employed, and do not have paperwork evidencing your taxes and finances for the past several years, you might need to have insurance even if you are borrowing just 60% of the total purchase price of the property.
So what factors affect how much lenders mortgage insurance you pay? Generally, this includes anything that affects the risk profile of your loan, such as:
- The total loan amount. This is the total amount, in dollars, that you will be borrowing. The loan amount is important for lenders to consider because a loan of $250,000 will tend to carry less risk than one for $450,000, even if they have the same loan-to-value ratio.
- The loan-to-value ratio. The loan-to-value ratio (LVR) represents the value of your loan as a ratio to the total value of your property. It represents how much of the purchase price you are borrowing. For example, you might borrow 80%, 90%, or 95% of the total purchase price.
- The type of loan. The type of loan you are seeking can impact on whether you need insurance, and how much you need to pay for it. For example, a low or no doc loan will tend to be riskier than a fully documented loan, so you might need to pay more for insurance for a low-doc loan.
Can I capitalise LMI?
In some cases you can capitalise LMI, so that you end up paying the same amount out of pocket as you would without insurance. In capitalising LMI, the mortgage insurance payment is capitalised into your loan, effectively allowing you to borrow for the insurance cost as part of your home loan. This can be convenient if you are concerned about how much lenders mortgage insurance you need to pay. Lenders mortgage insurance in Australia is usually just a one-off payment cost, and so you will not need to pay ongoing costs.
Do I need to pay more if I do capitalise LMI?
Generally you will not need to pay more if you capitalise your mortgage insurance. You will usually be able to access the same interest rates as you would for any other loan. You can choose variable or fixed rates, and opt for additions such as offset accounts and redraw facilities.
How can I find out more about LMI?
If you want to find out more about lenders mortgage insurance, do not hesitate to contact ABC Mortgages for a free consultation today. We can help you work out how much lenders mortgage insurance might apply to you, and identify the right loan for your needs.