6 strategies to avoid paying mortgage loan insurance to lenders
Mortgage insurance from the lender can be overwhelming, especially for potential first-time home buyers and those struggling to get started in the market.
It’s easy to avoid lender mortgage insurance if you already have money and property, but for those who get a deposit in the first place is a huge hurdle, it’s just another mountain to climb, and a few thousand more dollars which you need to raise.
Entering the real estate market is difficult, because saving is difficult, and if you don’t have a family member who can help you with a deposit or friendly contribution, LMI is a burden beyond that. Here is our list of the most realistic ways to avoid having to pay for mortgage insurance from the lender.
- Meet the 20% deposit requirement
It goes without saying that the best way to avoid paying mortgage loan insurance from the lender is to have a loan-to-value ratio of less than 80%. While many find it difficult to raise enough deposit to access the ladder in the first place, if you already have a property that can be used as equity, or you can somehow raise 20% of the price. of property for a deposit, then this is the obvious route to take.
LMI is an added expense on top of the deposit, so ask yourself if you’d better save for longer to avoid it altogether, thereby putting more of your money into the property you’re going to buy. and therefore own for a long time. This could be a better use of your money in the long run than paying for insurance on your own home loan.
READ MORE: Why are the CBA and Westpac raising their interest rates?
- Apply for a first home loan deposit program
If you can’t pay LMI, or if you want to avoid it, ask the government to pay it for you. No, really: if you are eligible for the First Home Loan Deposit Scheme, then this is an option for you. If you, or you and your partner, are both Australian citizens, you can buy your first property with just 5% down payment and zero LMI, thanks to the federal government.
Beware though: government programs are not forever and are limited to just 10,000 spots per year, so make sure you qualify and sort it out before entering the loan application process.
- Your profession should be considered “low risk” for lenders
The mortgage loan process is somewhat stacked in favor of the lenders – it’s their money, after all – and you’ll have to go through a few of their hoops to get the mortgage you want. Unfortunately for self-employed Australians, this can be a problem, as the big banks tend to prefer those with “traditional” jobs. That’s not to say that there aren’t loans for independent Australians, but the options for getting one at a lower rate, and without LMI, are more limited.
The good news is that if you have a “low risk” occupation, you may be able to get a loan more easily and get LMI waived. Much of the best way to avoid paying lender mortgage insurance is to convince a lender that they don’t need it, so having the kind of job they love certainly helps.
You might be the kind of person the bank says needs LMI, but are your parents? That’s not a silly question: Mom and Dad’s Bank might be your best way to scale up the property, either through a guarantor loan that uses the equity in your family home or by lending from money to a family member to get you where you need to be.
Ultimately, it might make more financial sense for you to get your inheritance now and invest it in a property that will accumulate value over time rather than saving it for the sake of it. absence of your parents and the relative value of that money, faced with rising ownership. the prices are less.
- Find a lender who doesn’t charge LMI
Not all lenders are created equal when it comes to LMI. There are options to bypass lender mortgage insurance through banks and non-bank organizations that just don’t ask for it.
One such option is 86,400, digital banking, they’ll give you 85% LVR, no LMI offer that reduces the deposit amount you otherwise would have had to make by 5%, for example. That’s a pretty big discount. They are also backed by NAB, so you get a serious home loan from a serious player without mortgage insurance from the lender on a 15% down payment.
- Get an equity agreement
First-time homebuyers are the ones burdened with LMI, but those on the home ownership ladder can help and help them. An equity sharing arrangement allows an existing owner to finance a portion of the price of the home, reducing the amount required to purchase it on the condition that the FHB later purchases the equity partner.
The mortgage is on the price of the property, less the deposit and the contribution of the partner, thus reducing the price. You still have to pay the partner back, but that could be considerably less in terms of interest – potentially zero, if that equity partner is, say, your mother – or just when you sell the house later after she has accumulated. value.
If you buy a house for a million dollars now and get 20% of the price from an equity partner, that $ 200,000 might not seem that big if the price has risen to $ 2 million in 10 years. That’s why SEA can be a good idea.