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New home loan needs smaller deposit and no LMI

New home loan needs smaller deposit and no LMI

A new mortgage offer from Homeloans is letting Australian borrowers take out loans with a lower deposit without needing to pay lenders mortgage insurance (LMI).

The Homeloans FlexiChoice Prime 85 No LMI mortgage charges no LMI to borrowers with a Loan to Value Ratio (LVR) of up to 85%. In other words, borrowers only need to save up a 15% deposit to apply for this home loan without having to pay potentially thousands of dollars extra for LMI.

What is LMI?

In most home loan applications, if a borrower has a Loan to Value Ratio (LVR) of more than 80% – that is, can’t provide a security deposit or equity equal 20% or more of the property’s value – the lender will consider the borrower to be at a higher risk of default, and take out a Lenders Mortgage Insurance (LMI) policy to help secure the loan.

It’s important to remember that LMI does not protect the borrower – it only covers the lender’s risk. If the borrower defaults on their mortgage repayments, the LMI policy will help the lender recover its costs.

Most home loan providers pass the cost of LMI on to borrowers, potentially adding thousands of dollars to the initial cost of establishing a home loan.

Formerly an option under Homeloans’ FlexiChoice Prime loan, the standalone FlexiChoice Prime 85 No LMI offer is available to owner occupiers and investors seeking to borrow up to $1.1 million, with no application fee or ongoing fee.

While both full-time and self-employed borrowers will be able to apply for this loan with a deposit of just 15% and avoid paying LMI, it’s important to note that there are exceptions, depending on the location and type of the security property:

ProductInterest rateComparison rate
FlexiChoice Prime 85 No LMI (Owner Occupied, Principal & Interest)4.69%4.72%
FlexiChoice Prime 85 No LMI (Investment, Principal & Interest)4.99%5.02%
FlexiChoice Prime 85 No LMI (Investment, Interest Only)5.14%5.17%

Where the security property is located in the ACT, or a unit/apartment in VIC the max LVR will be 5% less than the product limit. Where the security property is a unit/apartment and located in VIC postcodes 3000 to 3008 the max LVR will be 70%.

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This article was reviewed by Head of Content Leigh Stark before it was published as part of RateCity's Fact Check process.

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