LMI is short for Lender’s mortgage insurance, an insurance that is paid by the person purchasing a home to insure the lender because a loan that exceeds 80 percent the value of the property is considered a greater risk. People have different opinions about it but it is wise going through a full assessment before deciding if it is worth it or not.
For example, if you are purchasing a home that is worth 600, 000 dollars (including application fees, stamp duty, and conveyance cost) and you just have 10 percent deposit, which is equivalent to 60, 000 dollars. You have saved 750 dollars for the last one and half years, apply for a loan of 540, 000 dollars and LVR (you can check my other blogs for more info) will be 90 percent.
The LMI component on the 90 percent LVR will be approximate of 12, 100 dollars and this will be added to the total loan amount and you can get to your home as soon as possible.
If you decide to wait for another one and a half years to save 10 percent deposit and you don’t have to pay the LMI, an the home value increase by 3 percent every year, the home that was worth 600, 000 will be 627, 000 dollars in the one and half years. Sometimes it is just wise to pay LMI in the first place instead of having to pay more in the long run.