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Here is what you will learn by watching this video:
Whenever investors borrow above 80% LVR in order to buy an investment property, investors will have to pay Lenders Mortgage Insurance (LMI) for the privilege of doing so. At the time of writing this, the highest LVR offered in Australia via standard main stream lenders was 95% LVR plus LMI capitalised, equating to 97% LVR which includes the LMI premium.
Essentially, LMI simply refers to an insurance premium that is payable by the borrower, on behalf of the mortgagee, protecting the mortgagee against an event whereby the borrower defaults on their mortgage, dies during the mortgage or becomes unable to make repayments on the mortgage.
In Australia, there are two main LMI insurers used by most of the financial institutions and banks, namely, Genworth Financial and QBE. LMI is generally applicable on any loans over 80% LVR and 60% LVR for Low Doc loans. Having said that, some non-bank lenders, especially those offering non-conforming loans to the credit impaired sector, obtain LMI for every loan, irrespective of the LVR. In the event that a default occurs and the mortgagee (bank or lending institution) has to sell the property, any shortfall, less expenses, is insured by LMI.
LMI premiums vary depending on the loan amount; the higher the LVR the higher the premium charged. In the case of borrowing 81% LVR on a property purchased the LMI premium might be 0.3% of the total loan amount, compared to 95% LVR where the LMI premium may be as high as 3.5% of the total loan amount. So, to put that into perspective, on a $600,000 purchase, at 81% LVR the premium would be $1,458 ($600,000 @ 81% LVR = $486,000 x 0.3% = $1,458), on a 95% LVR the premium could be as hight as $19,950 ($600,000 @ 95% LVR = $570,000 x 3.5% = $19,950).
The question often arises, is it worth paying Lenders Mortgage Insurance premiums and borrowing above 80% LVR or is it better to structure a purchase with a 20% deposit and avoid LMI?
Well, it depends on your overall investment strategy, chosen time horizon for investing, available resources and equity or cash savings at hand when making this decision.
19 сен 2024
