Lenders' mortgage insurance (LMI) premiums are paid in two ways: a down payment or through capitalization. Capitalizing your LMI premium basically means adding it to the total amount of the loan and paying it in regular installments with your home loan. The lender will pay the LMI premium to the insurer when liquidating the purchase of your home. This one-time upfront payment covers the lender for the life of the loan (which can be up to 30 years).
The amount of the LMI premium depends on the lender, how much it lends to you and the amount of your deposit. The lender will normally transfer the cost of this LMI premium to you in the form of a commission. This is because the cost of buying an LMI is part of the lender's costs in providing financing for loans. You can pay this cost to the lender at the time of the agreement, or you can include it as part of the loan (so the cost of the LMI will be added to the loan repayments during the term of the loan).
Your lender, broker, or financial advisor will be able to provide you with details of the options available to you. The lender's mortgage insurance (LMI) is a single, non-refundable, non-transferable premium that is added to your mortgage loan. It is calculated based on the amount of your deposit and the amount you borrow. The more you contribute to the purchase price of your property, the lower the cost.
The LMI protects the bank against any losses we may incur if you are unable to repay your loan. The cost of the LMI may vary depending on the percentage of the value of the property borrowed and the amount of the loan. Lenders who waive the LMI in favor of their own risk commission (also called reduced capital commission, REF or low deposit premium, LDP) are able to maintain the lending process in-house through their own policies. In addition, the LMI may delay the application process, as the borrower must meet the lending criteria of both the lender and the LMI insurer.
As a first-time homebuyer, LMI discount offers will help you overcome the deposit obstacle and achieve your dream of homeownership. Because LMI reduces the risk for the lender, it increases the chances that they will lend you a loan even if you don't have a substantial deposit at first. They will assess your loan-to-value ratio (LVR) (the ratio of money you want to borrow compared to the value of the property you want to buy) and determine if you will need to obtain an LMI and your ability to repay your mortgage loan. If the LMI is added to the amount of the mortgage loan, the borrower will pay interest on the total loan and increase the minimum monthly repayments on the loan.
Doctors, Accountants and Lawyers 26% of specific investors may qualify for an LMI exemption; 26% save thousands of dollars on their home loan. Capitalizing the LMI is the most common way to pay the LMI, and most borrowers opt for the monthly option. It's important to understand that the LMI covers the lender, not you (or any guarantor), although the lender will normally pass on the cost of the LMI to you. However, for certain professions, up to 90% can be exempted from the LMI for LVRs and is evaluated on an individual basis.
If you didn't pay your mortgage loan and your house sold for less than the outstanding balance of the loan and your lender filed an LMI request, you still owe the amount of the deficit, but you'll have to repay that money to the insurer (instead of the lender).
