May 27, 2011
Saving money for a home deposit is becoming increasingly difficult as rents skyrocket and living expenses increase. Lenders Mortgage Insurance (LMI) costs are yet another hurdle to overcome in the long road toward owning your own home. But Genworth Financial says capitalising your LMI can help you fast track years of deposit saving and get into your own home sooner.
How it works: The amount charged for LMI is added to the loan and is capitalised into the total amount to be repaid over the approved loan term. This means the cost of the LMI premium is paid off through the regular mortgage repayments the borrower makes.
The main benefit: Being handed the keys to your dream home a lot sooner than if you waited to save the extra money. Even with a small deposit, borrowers can be in their homes sooner. Depending on the lender’s requirements, LMI allows would-be homebuyers to borrow up to 95 percent of the purchase price of their home, with a lower deposit than is usually required. Traditionally, lenders require borrowers to have at least a 20 percent deposit, however by using LMI, lenders are able to offer lower deposit home loans. And lenders and borrowers are generally both receptive to premium capitalisation, as it reduces the borrower’s up-front outlay.
For example: The LMI premium of a $316,000 mortgage comes to approximately $8,349. Capitalising the LMI will increase the monthly mortgage repayments by $58, taking the total monthly mortgage repayment to $2,366.
LMI protects the lender if a borrower is unable to meet their mortgage repayments and the property has to be sold for less than the amount owed under the loan. LMI should not be mistaken for Mortgage Protection Insurance, which covers your mortgage repayments in the event of death, sickness, unemployment or disability.
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