Lenders mortgage insurance (LMI) just comes with the territory when you own property, but it sure can eat away at a large chunk of your budget!
LMI is a lot like an insurance premium, but it is set up for the benefit of your lender, while you’re stuck paying the bill. Although this may sound like a bad deal, without LMI, you would have to save at least 20 percent to use as a deposit before purchasing a new property.
The trouble is, premiums have risen over the last few years. Lenders mortgage insurance fees were once manageable for those who wished to access funding of more than 80 percent. With the financial fallout of risky lending practices in the late 20th century, LMIs have soared, creating financial situations that resemble the likes of stamp duty levies.
For example, a client interested in investing in 2009 was looking to borrow 95 percent of the purchase price. As the loan dragged out over a six month period, the LMI increased from a scant $12,500 to more than $17,000! With a little negotiation, that price was dropped to $15,000, but that’s still quite a large chunk of change compared to the initial LMI estimate.