Lenders Mortgage Insurance (L.M.I.) - Explained
Lenders Mortgage Insurance (L.M.I.) – Explained
Lenders Mortgage Insurance (L.M.I.) is an insurance policy your home loan lender takes out to protect themselves if you default on the loan. L.M.I. is usually dependent on your “loan to value” (LTV) ratio.
What is LTV Ratio?
Put simply, it’s your deposit amount in relation to the property value. You can easily calculate your LTV ratio by dividing the total mortgage loan amount by the total purchase price of the home.
For example, a home with a purchase price of $1,000,000 and a total mortgage loan of $800,000 results in an LTV ratio of 80%.
Other Risk Factors
Besides the LTV ratio, other risk factors may require Lenders Mortgage Insurance, including:
- Lack of proof of income
- Unstable employment history
- Imperfect credit history
- No savings record
- Low documentation loans
- Buying property off the plan
How to Avoid L.M.I.
The best way to avoid Lender's Mortgage Insurance is to have a deposit of 20% or more of the property purchase price. You may also avoid paying L.M.I. if certain conditions are met, so it’s essential to discuss this with your lender. L.M.I. is typically a one-off fee when setting up your home loan.
The Upside of L.M.I.
There is an upside to Lenders Mortgage Insurance. By utilizing L.M.I., you have the potential to purchase a home sooner with a lower deposit. This can enable you to enter the housing market earlier, and the capital gains you make could outweigh the costs of L.M.I. Some lenders may allow you to borrow up to 95% of the purchase price.
Work with a Mortgage Broker
It’s wise to use a good mortgage broker to help you secure the best loan terms. They can guide you through the complexities of L.M.I. and ensure you make the most informed decision.
Welcome Home
At JKL, we’re here to support you in every step of your home buying journey. Our experienced team will help you understand Lenders Mortgage Insurance and how it fits into your overall plan.
Experience our JKL real estate family. We’ll put the welcome mat out for you!