Lenders Mortgage Insurance: A Smart Option for Homebuyers
Lenders Mortgage Insurance (LMI) is a cost that many buyers with less than a 20% deposit encounter. The good news is you don’t always have to pay it upfront. In Australia, numerous lenders offer the option to add the LMI premium to your home loan, helping you maintain healthier cash flow at the time of purchase.
How It Works
When you decide to include LMI in your loan, the premium becomes part of your overall borrowing. Instead of paying the fee as a lump sum at settlement, you repay it gradually along with your standard mortgage repayments.
Impact on Borrowing and Repayments
Although adding LMI to your loan minimizes your upfront costs, it does increase both the total loan amount and the interest you will pay over time. For instance:
- Loan Amount: $450,000
- LVR: 90%
- Estimated LMI Rate: 2.4%
- LMI Premium: $450,000 × 2.4% = $10,800
- New Loan Amount: $460,800 (plus any applicable stamp duty on the LMI premium)
This slight increase in your monthly repayments can also affect your borrowing power if you’re already approaching lender limits.
Other Considerations
- Stamp Duty on LMI: In some states, stamp duty may apply to the LMI premium. Be sure to verify the details with your broker or use an online calculator.
- Talk to Your Lender Early: If you plan to add LMI to your loan, it’s wise to inform your lender or broker during the application process.
Final Thoughts
Including LMI in your home loan can be a practical strategy to enter the property market sooner. Just ensure you weigh the long‐term costs against the benefits of saving up for a larger deposit.
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