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. For most lenders, the LMI fee can be included in the loan amount. 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. You have two general options for paying the LMI: as a single payment when your loan is paid off, or the cost can be added to the total amount of the loan.
While the LMI is a one-time cost, you may have to pay it again if you move properties. The LMI is an insurance policy that covers the mortgage lender against any losses that may be incurred if the borrower defaults on the loan. The LMI does NOT cover the borrower, it only covers banks and lenders. The LMI allows the lender to trust in offering you a mortgage loan, even if you haven't reached that 20% deposit.
Your guarantor can help by providing additional security that reduces the LVR to 80% and thus allows you to avoid paying the LMI. Your Yellow Brick Road mortgage broker can help you weigh the advantages and disadvantages of using the LMI or waiting until you have accumulated a 20% deposit. Although they are rare and have strict requirements, if you can show that you meet the conditions, you may have the opportunity to receive a discount on your LMI or even to be exempted from the LMI. Your mortgage broker will be able to identify not only how likely it is that the LMI will be approved, but also how long the application may take.
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. However, if your loan is paid off early, you may be able to get a partial refund of the LMI, depending on the lender. Your lender may be able to recover the deficit from the LMI provider, but even if it does, it doesn't mean you're free of problems. Since the LMI is normally paid when you come to terms with all other lender and government charges, you'll need to plan to pay this additional cost in addition to your deposit.
Your mortgage LMI calculator can help you understand how much you'll have to pay for a 30-year loan term. We can assess your financial situation and your real estate objectives and provide you with an overview of the LMI charges you might incur. While the LMI may seem like another cost meant to be a burden for homebuyers, the LMI can help those with a minimum deposit of 5% enter the market before property prices rise even higher. However, it's important to remember that the LMI doesn't provide you with any protection even if you pay it; it's there to protect your lender.
Since the LMI allows borrowers to buy a property with a lower deposit, it can be a real facilitator for investors who want to create a diverse portfolio with multiple properties. However, if you find it difficult to save a 20% deposit, you may still be able to borrow from a lender, but you may need to hire an LMI to reduce the risk for the lender.