While lenders mortgage insurance, or LMI, is a necessary evil for many first home buyers, could it actually be beneficial for breaking into the market?
As a first home buyer, there are generally a few non-negotiables to account for when it comes to home loan fees and the true cost of buying a property. While many are required to be paid up front, there are also a medley of others that are considered to be ongoing on top of your weekly, fortnightly or monthly mortgage repayment, with one of the most notorious being lenders mortgage insurance.
First introduced to the Australian market in 1965, Lenders Mortgage Insurance – or otherwise known as LMI – was essentially designed to allow more Australians to enter the housing market, while still allowing the lender to protect themselves in the event that a client defaulted on their home loan. With the rising cost of living, many first home buyers are struggling to save the required 20% deposit for a home loan, and are in turn slugged with paying extra fees for LMI.
However, recent market changes are indicating that the cost of lenders mortgage insurance as a first home buyer might not be such a bad thing after all, especially considering that this common fee can allow buyers to get a foot on the property ladder with as little as a 5% deposit.
How To Weaponize LMI As A First Home Buyer
While the thought of adding potentially thousands of dollars to your mortgage may seem daunting and even counterproductive, lenders mortgage insurance offers a glimmer of hope to those wanting to get into the property market faster – especially for those struggling in the rental pool.
This is down to the fact that LMI doesn’t need to be paid upfront, and can be capitalised into a home loan. Calculated on a sliding scale, an example of LMI at work is that if you were looking at a property at $500,000 with a 10% deposit ($50,000) – expect your LMI to be around $8000. While it sounds like a lot and is usually the first of many home loan fees that have a tendency to fill first home buyers with dread, LMI can also enable access to a mortgage with as little as 5% to get into the market faster.
In contrast, saving the full 20% deposit for a $500,000 property would amount to $100,000. Considering that many first home buyers are still forking out their hard earned income on the basics like rent, groceries and fuel – all of which are going up – the time this process would take suddenly makes paying lenders mortgage insurance look like the logical choice.
If neither of these options look attractive to you as a first home buyer, then it’s worth noting the other avenues available to you. As a first home buyer, be sure to double check if your circumstances and desired property qualify for any one of the various government issued grants such as the First Home Loan Deposit Scheme, the Family Home Guarantee, or the First Home Super Saver Scheme. These federal schemes have all been introduced to make purchasing your first home easier, so it’s worth exploring these options if you meet the eligibility criteria.
In addition, there is also the path of applying for a guarantor loan if your circumstances allow it. Although the exact terms and conditions vary between lenders, some require the buyers using guarantor home loans to have a minimum 5% deposit, while others will allow the buyer to borrow up to 105% of the purchase price of the property.
If you’re in the process of trying to purchase your first home this year, it’s always a good idea to partner with a finance professional who knows the ins and outs of these types of programs and which option is the ideal fit for you – but where do you find one?
How To Streamline Your First Property Purchase
The big attraction of buying your own home is just that – it’s yours, once you’ve paid back the banks of course. However, first home buyers don’t have it easy, which is why we’ve compiled our very own in depth First Home Buyers Guide. This resource is available to download, and can be a game changer when it comes to ensuring that you’re up to speed on how to get into your first home faster.
With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best, and another example of this is the free to use Savings Goal Calculator found on the Cherry Lending & Finance website.
If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility apply.
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