LVR and Lenders Mortgage Insurance
2008
If the amount you need to borrow to purchase your new home or rental property gives you a Loan Valuation Ratio, LVR, of more than 80%. (65% for some low doc mortgage loans) Your lender will almost certainly compel you to pay Lenders Mortgage Insurance (LMI) on their behalf.
In fact most lenders will send all the details of your loan application to a Lenders Mortgage Insurance provider for approval of your loan, as they will now be sharing in the risk of lending you money. Lenders Mortgage Insurance insures your home loan mortgage lender in case you default on your loan payments and the lender has to sell your property at a loss. The Lenders Mortgage Insurer will meet the shortfall if your lender makes a claim for this loss. You as the borrower benefit only by getting the loan in the first place, without having to save or accumulate a minimum 20% deposit.
The Lenders Mortgage Insurance premium you pay will be dependent on your LVR and the size of your mortgage. At least one of the major banks is offering a special deal where there is no LMI up to 85%, but after all the recent kafuffle with sub prime mortgage lending they may have retracted the offer. The best ways to avoid the LMI expense is to save a larger deposit, take a cash gift from your family to help get you under the 80% LVR or use another property as joint collateral to keep that LVR below 80%.
If you just have to have a certain property and you don’t have a benevolent family to help with the deposit, make sure you get a fixed price quote on the LMI from your lender before you sign on the dotted line.
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