If you have less than a 20% deposit, it’s still possible to avoid Lenders Mortgage Insurance (LMI). Are you eligible for an 85% no LMI home loan?
Do I qualify for 85% waived LMI?
Mortgage insurance is normally charged when you borrow over 80% of the property value, or 80% LVR (Loan to Value Ratio).
However, you can get an LMI waiver with select lenders if you meet the following requirements:
- Your home loan must be for $1 million or less.
- Lenders prefer standard residential properties in metro locations and won’t generally accept vacant land, construction, acreages or construction without charging LMI.
- Your credit file must be free of black marks.
- You need to be in a generally good financial position with stable employment.
One of our mortgage brokers can tell you if you qualify for an 85% no LMI home loan.
For a $850,000 home loan on a $1 million property, you could save as much as $11,000 in mortgage insurance just by choosing the right lender.
Call us on 1300 889 743 or fill in our free enquiry form today.
Do I need genuine savings?
In order to qualify for 85% waived LMI, you need to have genuine savings.
If you don’t, it may actually be worth it to pay the LMI to get into the property market sooner in order to take advantage of capital growth over the long-term.
You can actually borrow between 80-80.99% of the property with no genuine savings with some lenders.
So if your deposit came from a gift from your parents, a personal loan or anywhere other than regular savings into a savings account, you can still get approved but LMI will apply.
Can your parents be a guarantor or provide a gift?
If you already have a 15% deposit, are your Mum and Dad able to gift you an extra 5% of the property value as a non-refundable gift?
Alternatively, if they own their own home, they may be able to provide a limited guarantee for 5% of the property’s value.
Better yet, for such a small amount, you parents may be better off simply topping up their mortgage.
With an equity release, it means your Mum and Dad aren’t tied into a guarantor loan arrangement and are free to sell their property if and when they’d like.
Either option will allow you to reduce your LVR to 80% and avoid LMI!
What if I don’t qualify for 85% no LMI?
It may actually be worth paying mortgage insurance and getting into the property market sooner rather than trying to save a 20% deposit.
The fact that you have such a large deposit means you’re eligible for reduced interest rates and a lower LMI premium rate.
Therefore, it’s sometimes worth paying a little mortgage to get into the property market sooner.
The long-term savings and capital growth often far outweigh how much you’ll pay in mortgage insurance.
Case study: Pay LMI or save more?
Let’s say you have a 15% deposit ($75,000 deposit) and you’re looking to get a $500,000 home loan at 3.59% p.a.
Because you’re borrowing 85% LVR, you could pay up to $7,600 in LMI.
You want to avoid mortgage insurance so you spend another 3 months saving an extra $25,000.
You now have a 20% deposit in order to avoid LMI but the interest rate has increased to 4.00%.
If you were to instead pay the LMI with your current deposit, it would take you about 5 years for you to pay back the LMI bill but you’d save around $42,000 over the life of the home loan.
Of course, this doesn’t even take into account property market growth.
You could spend months trying to save a bigger deposit only to find that it’s not enough to avoid mortgage insurance anyway because property prices have now increased.
It can be a frustrating cycle and, most of the time, it’s best avoided.
If you can’t get waived LMI, compare and save!
Even though LMI premium rates are quite low when borrowing between 80-85% LVR, you can still save a lot by comparing mortgage insurers.
In particular, there can be huge differences between how much LMI is charged at each LVR bracket.
Providing just a little more as a deposit can save you thousands, depending on how much you’re borrowing.
One of our experienced mortgage brokers can help you save on LMI so get in touch with us today.
At best, some lenders allow you to capitalise LMI so you avoid this cost upfront.
Discover if you qualify for an 85% no LMI home loan
Call us on 1300 889 743 or fill in our online enquiry form and we’ll let you know if you’re eligible for an 85% no LMI home loan.