Rates have dropped: Here’s a hidden tool to help you buy your first home
If you want to take advantage of cheaper rates but haven't got a really big deposit saved, LMI could give you the perfect leg up.
Sponsored by QBE – helping customers learn more about lenders' mortgage insurance (LMI). Learn more on Finder's LMI hub, brought to you by QBE Insurance. Providing LMI since 1965.
Saving a 20% deposit is pretty standard for a first home buyer. Or at least it used to be.
But with property prices so high, a 20% deposit is a big ask these days. If you're buying an $800,000 home, a 20% deposit is $160,000.
If you only need a 10% deposit, then that hurdle is much smaller at $80,000. Luckily plenty of lenders will lend you 90% of your property's value. Some even go as high as 95%, meaning you only need a 5% deposit.
But they charge a lenders mortgage insurance (LMI) premium on top. Far from being just another home buying cost, LMI can actually be a very useful tool.
What is LMI?
Lenders mortgage insurance is a premium that lenders charge borrowers when their deposits are below 20%.
LMI gives your lender some extra protection if you're unable to repay the loan. It's an extra cost for borrowers, and can be as high as $10,000 or even $20,000.
The exact LMI premium you pay depends on the property's price and your deposit size. You'll pay a higher premium if you're buying a home with a 5% deposit than a 10% deposit.
Why LMI is your secret weapon
At first glance, an LMI premium seems like another cost home buyers get slugged with. And while that is true, it can also be a lifesaver.
Without it, borrowers would struggle to get loans approved with small deposits.
LMI is essentially a ticket to getting into the property market faster. While it may cost you thousands of dollars, it gets you into a home now instead of forcing you to spend years more saving a deposit.
This has 2 benefits:
1. You start paying off your home earlier
Instead of paying rent and slowly saving a bigger deposit, getting into a home earlier means you start repaying the loan sooner and owning more of your home each month.
2. You benefit from rising property prices now
Imagine you're stuck saving a 20% deposit while prices continue to rise. This just pushes your deposit goal further and further out of reach. But with LMI you're already in the market, and rising prices just add to your equity.
Using LMI doesn't limit your home loan options, either. Many lenders offer it, and a lot of them work with insurers like QBE to provide LMI to borrowers.
Learn more about QBE's lenders
 |
|
|
|||
 |
 |
 |
LMI can also open up your property options
Let's say you've saved $100,000. Now that's a 20% deposit. For a $500,000 property. But with LMI, it's a 10% deposit for a million-dollar property.
That's an extreme example, but it illustrates how LMI opens up your options as a buyer. It gives you more flexibility and makes more expensive properties in reach. Provided you can afford the loan repayments.
If saving a bigger deposit is your main challenge as a home buyer, think about whether LMI can help you. It could pay for itself pretty quickly.
Learn more about how QBE and LMI can help you purchase a home
Sponsored by QBE – helping customers learn more about lenders' mortgage insurance (LMI). Learn more on Finder's LMI hub, brought to you by QBE Insurance. Providing LMI since 1965.