Intro to Mortgages and LMI
LMI = Lenders Mortgage Insurance
Whether you’re buying a new home to live in, purchasing an investment property, or simply looking to refinance your existing mortgage to a better rate, taking out a mortgage will be one of the biggest and potentially life changing decisions you will make. Taking out the wrong type of loan, or not getting the best rate on your mortgage, can have a very significant impact on your quality of life.
At Credit Capital, we partner with a broad range of specialised mortgage providers so we can offer you a range of mortgage options that can be tailored and personalised to your individual circumstances and budget.
How much deposit do you have? Do you want a fixed or variable rate? Do you want re-draw facilities or off-set accounts attached? Regardless of the answers to these questions, and any other, with the broad range of lenders we access, we always get the best deal for your situation. We even have the ability to provide mortgages to people with bad credit.
With experience on our side, and the technology to process hundreds of applications each month, you can be certain your mortgage will be approved and settled in a timely and stress free manner. We understand that delays can not only be costly, but it could also mean you miss out on your dream home. We ensure this is never an issue and you never have to worry.
What is LMI?
LMI (Lenders Mortgage Insurance) is an insurance policy that protects the lender in the event the mortgage goes into default. It guarantees the lender will recover its loss in the event the property is repossessed and sold, and there is a shortfall repaying the loan. LMI is only required on high LVR loans, where the borrower has less deposit, therefore increasing the lender’s risk of not being able to recover their loss if the mortgage goes to default.
If you are able to provide 20% deposit towards the property purchase, that will usually mean you can avoid paying LMI. With today’s high property prices however, saving a 20% deposit can seem like an almost impossible task for many people. If you purchase a property for 500K, this will mean saving a deposit of 100k. LMI can therefore be very beneficial for home buyers as it gives applicants an opportunity to enter the market much sooner. Many people see LMI as another annoying expense to cover, however it can give you the opportunity to enter the market with as little as 5% deposit. On the same 500K property, this means only having to save a 25K deposit. If the market is hot and property values are increasing rapidly, paying LMI so that you can buy now can save you significantly in the long term. In the time it takes you to save the higher deposit, your property may have increased more than the cost of LMI. In many cases it makes economic sense to enter the market earlier, even if it means paying LMI, especially if you have the added expense of paying rent whilst you’re saving for your deposit.
Avoiding LMI with a Guarantor
If you don’t have 20% deposit, and you want to avoid paying LMI, there is another option. A guarantor can allow an applicant to take out a mortgage with a lower deposit without having to pay LMI.
The way it works is a guarantor provides a guarantee that they will cover the mortgage in the event that the applicant can not pay. A guarantor is usually the applicant’s parents, and they usually need to own their home outright, or have significant equity, and need to have the ability to make the payments if the applicant is unable.
This can be a great option for first home buyers wanting to enter the market, that don’t have significant deposit. It can be risky for the guarantor however as the full liability can fall back on them if things don’t go to plan. A guarantor must be certain they have the ability to pay the mortgage on top of their existing liabilities if they don’t want to potentially risk losing their own property.