When applying for a home loan with a deposit less than 20% of the property’s purchase price, lenders will generally require you purchase lender’s mortgage insurance (LMI). LMI is an insurance premium on your loan, which allows you to borrow up to, in most cases, 95% of the property value. LMI protects the lender should you fail to make your home loan repayments. It is important to know that LMI does not protect you, the borrower, in the case of a loan default. You should look at other insurance options if you want to insure yourself against future life events that might contribute to an inability to make loan repayments.
Gateway partners with Helia, a leading provider of LMI in Australia.
How it works
Pay the entire LMI premium in one upfront payment, as a lump sum when the loan is taken out.
Pros
- Your home loan repayment amount is based only on your loan amount as no interest is charged on the LMI premium.
- You may be able to borrow at a higher LVR.
Cons
- You will need to save up for the once off upfront premium, which may delay your home buying
- Upfront Premium LMI is lender specific and not portable; this means that if you decide to refinance to a different home loan and you are still borrowing above 80% of the property’s value, you will most likely have to pay a full lump sum LMI again
How it works
Capitalise the LMI premium into your loan, you add the entire premium to your total loan amount, and it is paid off via your ongoing home loan repayments.
Pros
- You may be able to buy your property sooner, without having to save for a once off LMI premium
Cons
- The applicable interest rates could be higher at a higher LVR
- You will need to demonstrate that you can service the loan including the capitalised premium amount
- The home loan repayment amount is higher with LMI capitalised since the interest will be charged on both the loan amount and the LMI premium
- LMI is lender specific and not portable; this means that if you decide to refinance to a different home loan and you are still borrowing above 80% of the property’s value, you will most likely have to pay a full upfront LMI fee again
How it works
Pay the LMI premium by the month over time until the property’s loan to value ratio (LVR) reaches 80%*.
Pros
- You may be able to buy your property sooner, without having to save for a once off LMI premium
- Monthly Premium LMI does not affect your LVR
- Payments cease once the property’s loan to value ratio reaches 80%*
- Your Monthly Premiums LMI will terminate if you decide to refinance to a different home loan, however if you are still borrowing above 80% of the property’s value, you will need to purchase LMI again
Cons
- You will need to demonstrate that you can service the loan including the monthly premium amount
LMI typically costs between 1 – 2% of the loan value, however the total cost will vary depending on several factors, such as:
- The value of the property purchased
- The size of the deposit saved
- Whether the property is intended to be lived in or bought as an investment
- The level of risk involved
Why not try Helia’s LMI premium calculator, it may give you a better indication of the total cost payable.
We will be able to advise you if your loan requires LMI and help you prepare all necessary documents. If you have any questions about LMI or a home loan with Gateway, give us a call on 1300 302 474 (8am - 6pm AEDT, Mon - Fri), or submit an enquiry form and a member of our team will get in touch.
Important information
*The loan’s Schedule Balance, not inclusive of redraw and offset account balances, must be at or below an LVR of 80% when the monthly premiums are calculated and applied.
