When applying for a home loan in Brunswick, one term you'll likely encounter is Lenders Mortgage Insurance (LMI). This insurance can significantly impact your borrowing capacity and the overall cost of buying a home. Understanding LMI is crucial for making informed decisions about your Home Loan application.
What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance protects the lender, not the borrower, if you default on your home loan. Banks and lenders across Australia typically require LMI when your loan to value ratio (LVR) exceeds 80%. This means if you're borrowing more than 80% of the property's value, you'll likely need to pay LMI.
For example, if you're purchasing a $800,000 property in Brunswick and have a $120,000 deposit (15%), your loan amount would be $680,000. This creates an LVR of 85%, triggering the LMI requirement.
When Does LMI Apply?
LMI generally applies in these situations:
• When your deposit is less than 20% of the property value
• If you're refinancing and the new loan exceeds 80% LVR
• When using equity from another property as security
• For certain professional packages that may have different LVR thresholds
Your Home Finance & Mortgage Broker can help assess your specific financial situation to determine if LMI will apply to your circumstances.
How Much Does LMI Cost?
LMI costs vary depending on several factors:
- Loan amount - Higher loan amounts generally mean higher LMI premiums
- Loan to value ratio - The higher your LVR, the more expensive the LMI
- Lender choice - Different lenders have varying LMI rates
- Property type - Investment properties often have higher LMI costs
For a $680,000 loan on an $800,000 Brunswick property, LMI could range from $15,000 to $30,000, depending on these factors. This cost can be added to your loan amount or paid upfront.
Strategies to Avoid or Reduce LMI
Build a Larger Deposit
Saving a 20% deposit eliminates the need for LMI entirely. For Brunswick's property market, this means having substantial savings, but the long-term benefits are significant.
Family Guarantee
Some lenders allow family members to use their home equity as additional security, potentially avoiding LMI even with a smaller deposit.
Professional Packages
Certain professions may access Home Loan options with reduced LMI requirements or waived LMI at higher LVR levels.
First Home Buyer Schemes
Government initiatives may help eligible buyers avoid LMI or access reduced rates.
Impact on Your Home Loan Application
When calculating home loan repayments, factor in the LMI cost. Whether paid upfront or added to your loan amount, LMI affects your overall borrowing costs. If capitalised into the loan, you'll pay interest on the LMI premium over the loan term.
For variable home loan rates, the additional loan amount from LMI means higher monthly repayments. With fixed interest rate home loan options, you'll have certainty about repayments but still need to account for the increased loan balance.
The Application Process with LMI
During the streamlined application process, your broker will:
• Assess your borrowing capacity including LMI costs
• Compare Home Loan Rates from various lenders
• Review your bank statements and financial documentation
• Calculate the total cost including LMI, stamp duty, and other fees
• Help you understand variable interest rate versus fixed interest rate options
Getting pre-approved is particularly important when LMI is involved, as it confirms your borrowing capacity including these additional costs.
Making Informed Decisions
While LMI adds to your home loan costs, it can enable you to enter the property market sooner rather than waiting years to save a 20% deposit. In Brunswick's evolving property market, this timing advantage might outweigh the LMI cost.
Consider these factors when evaluating LMI:
• Current Home Loan interest rates and potential future changes
• Time needed to save additional deposit versus property price growth
• Your employment stability and income prospects
• Whether you're buying your first home or investing
• Available interest rate discounts that might offset some LMI cost
Working with Blue Lion Lending
As your local Home Finance & Mortgage Broker, Blue Lion Lending provides access to Home Loan options from banks and lenders across Australia. We help Brunswick clients understand their choices, whether that's paying LMI to buy sooner or waiting to avoid it entirely.
Our team assists with the entire application process, from initial assessment through to settlement. We'll explain how LMI affects your specific situation and help you compare options including offset account benefits and various interest rate structures.
Understanding LMI is just one part of your home buying journey. With professional guidance, you can make decisions that align with your financial goals and circumstances.
Call one of our team or book an appointment at a time that works for you to discuss your Home Loan pre-approval options and understand how LMI might affect your Brunswick property purchase.