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How to avoid paying LMI

How to avoid paying LMI

Lender’s mortgage insurance (LMI) is going to be applied in a lot of cases when a loan is worth over 80 per cent of a property’s purchase price.

Very simply put, when a lender considers there to be high risk attached to a loan, an LMI payment is a likely possibility for the borrower.

With that in mind, we thought we’d put together a list of practical ways that might help to avoid having to pay this potentially expensive premium.

 

Save for a higher deposit

The main idea behind LMI is to protect lenders from the chance of the borrower failing to make repayments. When the loan-to-valuation ratio (LVR) exceeds 80 per cent – the risks of the lender not recouping their costs are considered pretty high.

By decreasing the LVR, by saving for a higher deposit, you may avoid paying LMI. Of course, that can be easier said than done - but reducing the perceived risks for a lender is the most obvious way to avoid paying a premium.

 

Get a guarantor

If you don’t have the financial capacity to meet a 20 per cent deposit but still want to avoid LMI, you do have the option of getting a guarantor for your loan.

A guarantor is typically a family member (and often a parent) who is prepared to use the equity in their home to guarantee a borrower’s deposit – and thus help you secure yours.

In fact, in certain circumstances, a guarantor on your loan may help you avoid paying a deposit at all.

 

Take advantage of professional benefits

Due to perceptions of reliability and high income, a number of lenders consider professionals earning more $150,000 in a so-called “low-risk” category – in which case special loan benefits can be available.

Doctors, in particular, (surprise, surprise) are considered favourably when it comes to waived LMI fees – but these special offers aren’t necessarily limited to medical professionals.

 

First Home Loan Deposit Scheme

Another option is to take advantage of the First Home Loan Deposit Scheme (FHLDS).

An Australian Government initiative, the FHLDS is designed to help eligible first home buyers get into the market more quickly.

The scheme allows eligible first home buyers to purchase or build a new home with a deposit of as little as 5% (lenders criteria apply).

As part of the 2020-21 Federal Budget, the Australian Government announced an additional 10,000 FHLDS places for the 2020-21 financial year.

 

And there are still a few of these places left for the 2020-21 intake, also the 2021 Federal Budget also released with a new scheme to support single parent with only 2% deposit from July 2021,

So please contact us at OzBroker ASAP if you want to discuss how to get in on this opportunity!

 
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