What is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance protects the “lender” and not the “borrower” from any default on the part of the borrower in making the regular loan repayment as per the loan terms. When the borrower borrows more than 80% of the value of the property, he is compelled to pay for LMI. LMI insures the lender against the risk if the borrower defaults on the mortgage and the lender takes possession of the property and sells it. The insurance covers the potential shortfall between the loan amount and the net realization amount from the sale of the property. The lender arranges the insurance and the borrower pays it as one off payment at the time of settlement of the loan.
LMI is calculated on the basis of Loan to Valuation Ratio (LVR) of the property. Greater the LVR, higher the mortgage insurance. It is also based on the loan amount. The cost of LMI can vary between 0.5 percent and 3.5 percent of the loan amount.
How much can I borrow?
This depends on a number of factors like the borrower’s income, how much borrower has saved up and prepared to pay as contribution towards the purchase, whether first income buyer, residential home buyer, investor etc. Depending on the borrower’s circumstances and the lender’s lending criteria, it may be possible to borrow up to 95% or even up to 100% of the value of the property provided the borrower meets the serviceability criteria of the lender and the Mortgage Insurer.
Should I take a Fixed Term Loan OR a Variable Rate Loan?
It depends on a number of facts on your expectation of interest rate movement in the future. Whether will you be able to save much more than the minimum loan repayment? Is additional repayment option is important to you? Will you be looking at refinancing or restructuring your loan in the near future? Purpose: Is it an owner occupier loan or investment loan.
I have credit issues. Will I be able to borrow?
It all depends on the seriousness of the issues. A default listing will remain on the borrower’s credit file for a period of five years. If the credit issue is not serious, may be able to obtain loan from normal lenders. If the issue is serious, Non Confirming Lenders will be prepared to look at the case and may be able to assist.
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