How much LMI do I have to pay?

Any general questions you might have in regards to loans and finance.
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stace
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How much LMI do I have to pay?

Post by stace »

Hi there, I am a web developer working for an IT company. On an average I earn about $80,000 each year.

I have been living in my parent’s home for a while now and was seeking to buy my own home and recently, I came to know that banks charge an extra amount called LMI on all home loans. Why is it charged and how much would it cost?

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Otto Dargan
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Re: How much LMI do I have to pay?

Post by Otto Dargan »

Hi and welcome to the forums Stace,

LMI stands for Lenders Mortgage Insurance. Thisis a one-time charge payable at the time of loan advancement. It is paid to protect your lender from any foreseeable default (if any) on your mortgage.

Actually LMI is not applicable in all cases – usually it is only charged where your loan seems to pose a high risk to the bank. This is generally when your LVR (Loan to Value Ratio) is above 80%.

If a person is self-employed and it is difficult to prove their income stability then they may go for a low doc loan in which case LMI will be charged for a loan of over 60% LVR.

All the mortgage insurers in Australia use different rates and premium tables to calculate the LMI for your loan so there is no one method for finding out your LMI. This is because along with different rates, they also different guidelines and policies which means that what one insurer might find risky, another may accept it.

Having said that we have an LMI Calculator that you can try out to get an estimate for the LMI of your loan. What this does is calculate the estimated LMI for someone in your situation as per our lenders. It will then show you the lowest LMIs available to you in a table so that you can compare them.

Please keep in mind that selecting the right lender means that you can save up to thousands in LMI since the difference can be that high sometimes.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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stace
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Re: How much LMI do I have to pay?

Post by stace »

Thanks Otto, but I did not quite get what an LVR is?

Just for your information I intend to buy an apartment worth around $450.000. For this I may have to borrow around $400,000 and I will pay the rest from my savings. How much would I have to pay as LMI in this case?

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Otto Dargan
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Re: How much LMI do I have to pay?

Post by Otto Dargan »

Hi Stace,

LVR stands for Loan to Value Ratio. It is the amount of loan to be borrowed represented as a percentage to the security/property value.

LVR is one of the most important factors that lenders assess when evaluating a loan application since the higher the LVR, the higher the risk to the lender.

You can calculate your LVR by dividing your loan amount by the total value of your property. In your case if you intend to buy a property worth $450,000 and you borrow $400,000 your LVR is 88.89%.

Alternately you can also try out our LVR Calculator.

Please note that LMI is deducted before the loan funds are advanced to you. This means that if your LMI was $5,000 then you would only get $395,000. To avoid this you can also capitalise your LMI where the lender lends you the LMI amount so that you will end up getting as much as you had intended to borrow.


Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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stace
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Joined: Wed Jun 24, 2009 4:48 pm

Re: How much LMI do I have to pay?

Post by stace »

Ah okay, thanks. I forgot to try the lmi calculator also, so ill just try both now. Thanks!

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totoro
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Re: How much LMI do I have to pay?

Post by totoro »

Hey experts, I want to get a home loan soon and was looking this up and somehow landed on your forum.

I am already clear about most of the general terms involved but I had a small confusion – can you tell me who approves an LMI? Is it done by the banks themselves or some insurers?

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Otto Dargan
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Re: How much LMI do I have to pay?

Post by Otto Dargan »

Hi and welcome to the forums Totoro,

Usually if your loan requires an LMI fee the mortgage insurers will assess your application and only after getting their approval can the lender approve your loan.

However some lenders have an agreement with the insurers that they work with which is called a Delegated Underwriting Authority or DUA. What this means is that they are allowed to approve the LMI policy for any such applications.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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totoro
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Re: How much LMI do I have to pay?

Post by totoro »

So does it make a difference if my bank has a DUA or not? Will it benefit me as a borrower?

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Otto Dargan
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Re: How much LMI do I have to pay?

Post by Otto Dargan »

Totoro,

A loan application that has been approved by a lender holding a DUA is automatically approved by the mortgage insurers. The LMI policy considering the loan is also automatically approved without the need for the insurers to even see the application.

Although you may not notice it, a lender with a DUA is better for you because:
  • A loan or LMI policy approved through the bank itself is comparatively faster than approved through a mortgage insurer since you do not have to wait for an additional 48 hours for them to assess it.
  • Lenders use their own credit policies which are more flexible than that of the insurers.
  • The mortgage insurers have very strict credit scoring system that usually cause a number of good loans being rejected. On the other hand, most lenders have lenient to no credit scoring policies.

To find a lender who has a DUA you can contact us on 1300-889-743 or enquire online.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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totoro
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Joined: Wed Jun 17, 2009 4:58 pm

Re: How much LMI do I have to pay?

Post by totoro »

Thanks Otto. I will get in touch with you soon and hopefully you guys can help me with my home loan!

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