To calculate your LMI premium, simply multiply your LMI rate by the amount of your loan. Next, add the stamp duty on the LMI applicable to the state in which the property is located. The lender's mortgage insurance is calculated with the help of an LMI calculator as a percentage of the loan amount. The amount of your LMI will vary depending on your loan-to-value ratio (LVR) and the amount of money you want to borrow.
Generally, you'll pay the LMI of your mortgage loan if you apply for more than 80 percent of the value of the property in a standard loan, or more than 60 percent of the value of the property in a loan with a low level of documentation. Lender's mortgage insurance (LMI) protects your lender if you can't afford the mortgage; basically, an insurance policy that protects the lender from financial losses. In a rising market, paying the LMI (which stands for mortgage insurance from lenders) and buying earlier could be cheaper than the additional dollars needed to guarantee a property within a year if prices rise dramatically during that period. Take advantage of financial assistance designed to help with that important deposit, avoid mortgage insurance (LMI) from lenders and to have your name appear on mortgage documents.
You can pay the LMI as a single lump sum when you set up the loan, or you can capitalize it on loan repayments, which is what most borrowers end up doing. If your mortgage loan application is rejected due to the criteria of an LMI provider, consult your mortgage broker. If your loan is high-risk (for example, if you are applying for a major loan that represents more than 80 percent of the value of the property or if you have no proof of income or work history), you may have to pay an LMI premium. Using the same LMI rate table above, let's look at an example of how structuring your loans the right way makes a difference.
The LMI means that, even with a small deposit, you have the chance to own your home sooner, allowing the lender to trust in offering you a mortgage loan, since you know that any loss will be covered. With the LMI in place, many lenders will allow you to borrow up to 95 percent of the purchase price of your home. You can apply for another mortgage loan with a lender that insures itself or uses a different LMI provider. Some lenders have professional packages for doctors, accountants and other professions where you can borrow up to 90% without incurring an LMI.
The “double fall” of the LMI under these circumstances remains a hot topic in the industry, but unless regulatory rules are established that change practice, it is to be expected that the status quo will be maintained. An LMI calculator will give you an approximate figure, but of course, for more information and before making any decisions, be sure to talk to the different lenders attached to each LMI calculator.