When you consider that a small flat in Sydney could set you back half a million dollars at the moment, saving up a 20% deposit to buy that flat – $100,000 can seem an overwhelming – or just plain impossible task…… That’s where lenders mortgage insurance can help!
Lenders mortgage insurance (LMI) may be an added expense, but it offers buyers the opportunity to dive into the property market earlier, without saving up an entire 20 per cent of the property’s purchase price as a deposit.
What exactly is lenders mortgage insurance?
LMI protects the bank or lender, should a home loan go into default, guaranteeing that the lender will get its money back if the property needs to be sold and there is a shortfall in repaying the loan.
While a 20% deposit generally provides a good buffer against any drops in property value over the life of a loan, LMI can also provide the same protection, meaning borrowers can purchase property with a smaller deposit.
What’s in it for you?
For the borrower, it may seem LMI is just another expense to cover, but this insurance can mean that some buyers will be able to enter the property market with only a five per cent deposit saved. In the example above with a $500,000 property purchase – this brings the deposit down from $100,000 to just $25,000.
And, if the market is hot and prices are rising rapidly, paying LMI so that you can buy now could be cheaper than taking the time to save a bigger deposit. In the time it takes to save a higher deposit amount, property prices may well have surged by more than cost of the insurance so, for some properties and purchasers, it can make good financial sense to purchase earlier even with the added cost of LMI, especially when you consider the rent that you would pay while you’re saving.
What you need to know
The insurance premium is generally a one-off payment, but you may be able to roll it into the loan amount so that you are paying for it month-by-month along with your mortgage.
There can be a big difference between the premiums paid if you have, for example, a 10 per cent deposit saved compared with a five per cent deposit, so it may well be worth trying to gather together some extra funds. Many banks will not look at less than a 10% deposit so you will also need to do your research. At the end of the day – the bigger the deposit the better but when time is critical use what ever avenue is available to you.
Let Chris do the research for you and let you know which banks will lend to you and how much deposit you will need – it costs you nothing to be prepared. Call Chris now on 0434 449 455 or email us at email@example.com