If you have applied for a homeloan in recent times you might have heard the term "LMI". So what does it mean??
LMI stands for Lenders Mortgage Insurance. Basically it is a type of insurance that will assist the bank or lender to recover losses if a home buyer is unable to repay their home loan. It does not provide protection to you as the borrower, it protects the lender.
Here in Australia, it is compulsory for any loan with an LVR (see - "Decoding the Jargon - LVR") above 80% to have LMI, and the cost is charged to the customer as a one off payment which is usually added to the your homeloan.
The cost of LMI is dependant on the size of the loan you have applied for and how high your LVR level is. Generally the cost of this insurance ranges from $5,000 to $20,000.
AVOIDING LMI is possible by saving enough deposit to keep your loan at or under 80% of the property value. Be mindful that you will also need to save enough funds for any fees and charges and stamp duty which will also be due with the purchase. Doing this can be challenging, especially for many first home buyers.
The other option is to have someone who is willing to be a guarantor on your loan. This is a decision that shouldn't be made lightly and only after discussions with an industry specialist that can make you and your guarantor fully aware of all the associated risks and minimise such risks where possible.
Contact a Gadsden Finance Broker for an Obligation Free chat if you have any questions regarding this or other finance concerns. PH: 03 5443 9098
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