Understanding Lenders Mortgage Insurance (LMI)

Clients of mine who are first home buyers have saved a $50,000 deposit and are looking to buy a property for around $550,00. Given that their deposit is around 9% of their purchase price, they are required to pay Lenders Mortgage Insurance (LMI). Based on their deposit amount and property purchase price, the LMI is approximately $13,450, which they will add to the total cost of their loan and pay off over the life of the loan. 

 

As a general rule, if your deposit is less than 20 per cent of the value of the property, you will need to pay for Lenders Mortgage Insurance (LMI). There are also some specific cases that require a higher than 20% deposit, depending on the type and style of property you’re purchasing – for example, some inner-city apartments or rural land.

Why do lenders insist on LMI?

The lower your deposit as a percentage of the purchase price of the property, the higher the lender views their risk in the event that you fail to meet mortgage payments and the property needs to be repossessed and resold. It is important to be aware that LMI only covers the lender if you default on your loan payments (and the lender is unable to secure the full outstanding debt still owing, when they sell your property). LMI does not provide you with any cover.

How much does LMI cost?

The bigger the percentage of the property’s purchase price you have to borrow, the greater the amount you’re likely to pay for insurance.

A handy site that offers an approximate guide on how much LMI may cost is the LMI Premium Estimator on the Gemworth website. For a more exact calculation on LMI, it is best to get in touch to work through what it might be for your specific situation.

 

How is LMI paid?

LMI is usually paid as a one-off lump sum at the time of settlement but in many cases it can also be added into the loan amount and paid off over the life of the loan – a term known as capitalising the LMI. LMI is always paid directly to the lender as part of the settlement and the lender then uses their preferred insurer.

Why would you pay LMI? Why not wait until you have 20% deposit?

Lenders Mortgage Insurance (LMI) allows some buyers to enter the market earlier than they could if they had to wait until they have the required deposit to ‘avoid’ LMI. For first home buyers, particularly those struggling to save a deposit in an environment of rising house prices, but more than comfortable to meet their mortgage repayments, it can be a key tool to break free from renting and get into the property market.

 

If you need any information on Lenders Mortgage Insurance, or are looking at buying a first home, be sure to get in touch. You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

 

 

Insurance and protecting your family home

Why do I need life and income protection insurance?

One of the questions Mortgage Brokers ask clients is whether they are insured – not just car insurance or house insurance (which everyone should have by the way) but life insurance and income protection insurance.  Brokers are obliged to get clients thinking about how they would pay for their mortgage in a worst case scenario.

No one likes to think about it, but what would happen if something happened to you? Either an accident or an illness that meant that you were unable to work or worse permanently incapacitated or even deceased? In this situation, how would you ensure that your family could continue to meet loan repayments and stay living in the family home?

It is important to note that a qualified insurance professional will be able to tailor your insurance to meet your individual circumstances. As with all things in life, if you want the best outcome you need to seek the best advice.

Here are some of the types of insurance available which can assist in providing security for you and your family:

 

1) Income Protection Insurance

Also known as salary continuance, Income Protection Insurance provides a means by which some of your income can continue to be paid to you in the event of illness or injury for a period of time to allow for recuperation. It is especially valuable for individuals whose business or income relies heavily on their own skills and ability to perform duties. Most policies will cover up to 75% of Gross (before tax) income and will be limited to a timeframe of around 2 years. The precise terms will vary from policy to policy and on how much the premiums are.

 

2) Total and Permanent Disability Insurance

In the event that you are seriously injured or sick and cannot perform your income producing activities for an extended period of time, Total and Permanent Disability Insurance may provide a means through which you can continue to support yourself and your family.   The precise terms of a policy, including what constitutes Permanent Disability will vary across different insurance providers. It is best to consult an expert in this field who will be able to provide the alternative that is best for you and your circumstances.

 

3) Life Insurance

It’s not a topic we like to give much thought too, however what would happen if you were to pass away. If you die with financial obligations such as a mortgage or other loans, then those left grieving may also be responsible for the ongoing repayments. Life insurance can be taken out to ensure that if you were to pass away that your loved ones would receive payment to enable them to continue to pay the mortgage, school fees or life’s other costs.Costs of these policies will vary and are generally defined by the waiting period to receive benefits and the benefit that will be applied. A qualified insurance professional will guide you through the options.

4) Home Loan Insurance

Providers like the ALI Group provide Insurance specifically related to your home loan. This cover means that they will pay your home loan in the event that you are unable to due to some unforeseen event (usually sickness or death). This type of cover may be in conjunction with other insurances but more specifically relates to your mortgage commitment.  This insurance is available through your Mortgage Broker

 

Now I’m feeling a bit worried…

It’s often uncomfortable to think about worst case scenarios and to sweep the thought ‘under the carpet’. Addressing your insurance needs shouldn’t make you worry though, it should actually provide you and your family with peace of mind. With the right policies in place, there are ways to ensure that life’s unexpected events need not be catastrophic to your personal finances and future lifestyle.

It is best to speak with a good Financial Planner about your insurance requirements as sometimes what you have through Super may not be sufficient. If you would like to speak with an expert, please get in touch and we can point you in the right direction.

 

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.