How much LMI will I pay?

Any general questions you might have in regards to loans and finance.
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danny elfman
Posts: 47
Joined: Tue Jul 02, 2013 6:52 pm

How much LMI will I pay?

Post by danny elfman »

Hi everyone!

I am a crane operator for a construction company in Canberra. My annual income is $84,000. I am thinking about buying a new house. I am looking at a property that is priced at $750,000. I can put a deposit of about $100,000 from my savings for that.

I was talking to my friends the other day about this and they said that I may need to pay an insurance premium for LMI. I had not planned on paying an insurance. I would be grateful if someone could give me an idea on the LMI premium I may be required to pay.

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Otto Dargan
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Re: How much LMI will I pay?

Post by Otto Dargan »

Hi and welcome to the forums danny elfman,

You can use the LMI Calculator to get an estimate of your LMI premium. It asks you to input various factors related to your loan application and compares the LMI premiums and the interest rate on your loan with five different lenders.

Lenders Mortgage Insurance works as an additional security to the lender in case you default on your loan. Lenders require borrowers to pay LMI if they perceive that there is a high risk associated with a particular loan application.

You are required to pay LMI if the Loan to Value Ratio (LVR) is more than 80%, or 60% in case of low doc loans.Generally, the higher the Loan to Value Ratio (LVR) and the loan amount, the higher will be the required LMI premium.

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

danny elfman
Posts: 47
Joined: Tue Jul 02, 2013 6:52 pm

Re: How much LMI will I pay?

Post by danny elfman »

Thanks for the reply, Otto. I used the calculator and it said that the LMI premium may range from $7,475 to $12,002. Why do I need to pay different LMI premiums with different banks. Also, there was something mentioned about LMI capitalisation. I am not entirely sure what that means. Could you also tell me more about that?

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Otto Dargan
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Re: How much LMI will I pay?

Post by Otto Dargan »

Hi danny elfman,

As mentioned earlier, the LMI premium depends on the risk associated with the home loan. Different lenders and mortgage insurers assess the risks associated with a home loan differently. That is why you may be required to pay different LMI premiums across different lenders.

When you capitalise your LMI, you are able to add the LMI premium on top of your loan. Consequently, you will have more funds available to you. For example, if you are borrowing $650,000 for a house worth $750,000 then the LMI premium may be $10,000. Normally, you will receive only $640,000 from your mortgage after deducting the LMI premium from your loan.

However, if you capitalise your LMI then you will be able to borrow an additional $10,000 and your total loan amount would be $660,000. You will effectively be able to have access to the entire $650,000 and it will not decrease the size of your deposit.

If you would like to know more about these then you can check out our website. We can also be reached on 1300 889 743 or you can fill in our free assessment form to see if you qualify for a loan or not.

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

danny elfman
Posts: 47
Joined: Tue Jul 02, 2013 6:52 pm

Re: How much LMI will I pay?

Post by danny elfman »

Thanks for the explanation. I will call you guys soon to discuss my loan application.

Bukowski86
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Joined: Thu Jun 27, 2013 5:04 pm

Re: How much LMI will I pay?

Post by Bukowski86 »

Hi everyone! I have heard that it may be possible for me to avoid paying LMI. Is it really true?

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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: How much LMI will I pay?

Post by Otto Dargan »

Hi Bukowski86,

In some cases, the LMI premium can be waived entirely or reduced by a certain percentage if the lenders think that they are not at much risk even though they are lending a large percentage of the property value.

Reduced or waived LMI is usually given to people who have a high income and therefore are considered a low risk. If you are applying for a guarantor loan, you will not need to have any LMI insurance.

In other cases, if you are a doctor then you can have your LMI waived for up to $4.5 million loan amount, as well as LVR of not more than 90%. Similarly, accountants, lawyers, and engineers can have their LMI entirely waived for loan amount of $2 million, again with the maximum LVR of 90%. You would, of course, need to be a member of the relevant professional organization for this.

In some cases, people with perfect credit history can have their LMI premium waived if they are not looking for a loan of more than 85% of the value of the property. If you do not qualify for a waived LMI, then you may still have your LMI reduced. This is possible if you are a first home buyer, or if you have more than 5% in genuine savings.

Remember that the interest rate and LMI premiums, on top of differing taxes in different states can be a complex thing to figure out. The best thing for you would be to talk to a professional mortgage broker to find out what options are available to you

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

Bukowski86
Posts: 49
Joined: Thu Jun 27, 2013 5:04 pm

Re: How much LMI will I pay?

Post by Bukowski86 »

Thanks for explaining things to me, Otto. I will share this info with my family.

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