How is LMI Calculated?
Lenders Mortgage Insurance, also known as LMI, is a fee charged by mortgage lenders if you are borrowing more than 80% of the purchase price of your property. It helps protect the lender in case you default or cannot make your loan repayments. There are two ways to pay LMI:
- Paid in full at settlement
- Added to the total loan amount as an additional fee every month (this is the most common method).
Your lender calculates your LMI as a percentage of your loan amount.
What Determines My LMI?
Each lender has its own method of determining LMI. But, in general, there are a few factors that determine how much your LMI costs:
- The size of your loan: the more you borrow, the more LMI you will have to pay.
- The size of your deposit: the smaller your deposit, the more LMI you will have to pay.
- Whether your property is an investment, owner-occupied, and location: some locations require you to pay stamp duty on LMI. In addition, owner-occupied properties are considered to be lower risk, so you may pay less LMI.
- Whether or not you have genuine savings: the more savings you have, the lower your LMI premium may be.
Can LMI Be Waived?
Most lenders require a deposit of at least 20% if you want to avoid paying LMI. However, there are some cases where it may be waived or discounted if you meet specific conditions. Some of these conditions include:
- Borrowing slightly more than 80%
- You work in a specific profession and are borrowing less than 90%.
- Your lender has some sort of internal substitution.
If you have questions about how LMI is calculated or how much LMI you will have to pay on your home loan, the experts at Mortgage House can help.