There are many costs to consider when choosing a home loan but one that can sting, is lenders mortgage insurance. According to Commonwealth Bank, over 2 million Australians have used lenders mortgage insurance to help them get into the property market, when they didn’t have a big enough deposit.
Lenders mortgage insurance (LMI) is a security cost which is required if you want to borrow more than 80% for a standard loan, meaning if you don’t have a 20% deposit saved you will be stung with insurance which could end up costing you thousands.
Lenders mortgage insurance is calculated based on the loan amount and the loan value to ratio (LVR), the higher the loan to value ratio, the higher the risk to the lender and the more you will pay for LMI.
How can I avoid paying lenders mortgage insurance?
- Save 20% or more as a deposit
- Get someone to go guarantor for you loan
Planning for your new home and doing your maths could save you thousands. However, a 20% deposit on a medium size home loan of $300,000, is $60,000, which is a substantial amount of money to put aside. While it certainly pays to have a 20% deposit, it's easy to see why for some it's a hard goal to achieve.
Planning, research and shopping around are the key to understanding your total home loan costs.