When considering a home loan, it isn’t just the regular repayments you need to consider, but also Lenders Mortgage Insurance, also known as LMI. Did you know that in Australia certain career professions are eligible for LMI waivers? Learn more about the potential savings with LMI waivers for professionals below and find out if this may apply to you.
Lenders Mortgage Insurance is a one off payment added to your home loan that is paid at the time of loan settlement. It is based on the amount you borrow and your loan to value ratio (LVR). Generally speaking, you will be required to pay LMI if you borrow more than 80% of the property’s value, or refinance with a LVR above 80%. LMI is based on the total worth of the property, and it can cost you tens of thousands of dollars.
Designed to safeguard the lender in the event that you may default on the loan, LMI is calculated based on the amount you are borrowing, your deposit, the type of loan, and your employment status.
If you are buying a property with a deposit of less than 20% you will be required to pay Lender’s Mortgage Insurance unless you qualify for a LMI waiver for professionals. LMI can be costly and is something that needs to be considered when applying for a home loan. As an example, if you are buying a home worth $1,000,000 with a deposit of 10%, the LMI would be $19,204 As you can see if you qualify for a LMI wavers for professionals you can save a lot of money.
Note: the LMI example above has been calculated using QBE/Nab. Different banks use different insurers, or are self insured, and have different LMI premiums and the above should be used as an example only.
Certain professions are considered stable with high income earning capacities and therefore considered lower-risk borrowers by banks and lenders. LMI waivers for professionals are available depending on the lender for the following career professions:
Doctors, dentists, optometrists, nurses, midwives, chiropractors, surgeons, veterinarians and other medical professionals are considered high income earners and eligible for LMI waiver. Learn more about LMI waiver and home loans for medical professionals.
Legal professionals such as lawyers, barristers, judges and solicitors who are members of certain professional organisations can apply for an LMI waiver. For more information check out our article on home loans for lawyers and legal professionals.
Like legal professionals, accountants and finance professionals are also eligible for LMI waiver. Check out our comprehensive list of eligible job titles for home loans for accountants.
Some lenders offer LMI waivers to those working in the entertainment industry who are represented by an accredited agent, manager or accountant. If you are working in theatre, film, TV or music and earn a minimum of $150,000 per year ask our team if your situation applies.
Professional sportspeople can include athletes, coaches and retired athletes still working in the sports or entertainment industry such as presenters and commentators. To qualify you must earn at least $150,000 per annum and be represented by an accredited agent, or manager to apply for an LMI waiver.
It is important to note that to be eligible for LMI waivers for professionals you must meet the minimum income requirements, have a good credit score and financial history. Alongside this most lenders will require proof of industry membership and other criteria to be met. Depending on the profession, as in the case of professional athletes and mining specialists, an LMI waiver will apply to loans up to $2 million and those that don’t exceed a 90% LVR (loan-to-value ratio). For information specific to your individual situation, it is advisable to speak with a mortgage broker to find the best loan option.
Whilst there are variations from lender to lender as to how LMI is calculated. The higher the purchase price and loan amount, the higher the LMI premium paid. See the below guides for potential savings:
Conversely, when looking at the same purchase price the the higher your deposit is, the lower the LMI premium paid
Note: the LMI example above has been calculated using QBE/Nab. Different banks use different insurers, or are self insured, and have different LMI premiums and the above should be used as an example only.
First home buyers who apply and qualify for the First Home Guarantee Scheme will be exempt from paying LMI. In this instance the government acts as a guarantor, covering the loan if you were to default on the repayments. The scheme is designed to assist more first home buyers to enter the market with as little as a 5% deposit.
If you are looking to refinance your home loan and the amount left owing equals 80% of the property’s value or less you could potentially have your LMI waived. In this instance, you are considered to have built up enough equity in your home and therefore are less of a risk to banks or lenders.
If you have already paid LMI on your original loan and choose to refinance but your equity is less than 20% of the value of the property then you will have to pay Lender’s Mortgage Insurance again unless you qualify for an LMI waiver.
Banks and non-bank lenders accept a certain list of professions for LMI waivers as they see these borrowers as lower risk because they have higher earning capacities, rarely default on their mortgage, make repayments on time, borrow higher loan amounts and are connected with high net-worth borrowers.
Yes, in most cases when a lender offers an LMI waiver it will apply to both owner occupied and investment properties, however the maximum LVR and loan amounts can differ between the two
Lender’s Mortgage Insurance is different to mortgage protection insurance. LMI protects the lender if you default on your loan, whereas mortgage protection insurance is something the borrower takes out to protect themselves against risk.
The easiest way to avoid Lender’s Mortgage Insurance is to save a deposit of 20% or more. If you are refinancing, make sure you refinance your home loan with a loan-to-value ratio of 80% or less. There are some other options you can consider if you don’t fall into the category of LMI waiver for professionals.
Have a guarantor
If your deposit is less than 20% having a family member or someone else act as a guarantor on the loan can help you avoid LMI insurance. For example, if you have a deposit of 10% a guarantor can provide the remaining 10% via an asset such as the family home. Having a guarantor is not without risk so it is important to do your research first.
Government support
As discussed earlier in the article first home buyers can consider applying for the First Home Guarantee Scheme. This government backed scheme allows first home buyers to enter the market with as low as a 5% deposit. In this instance, the government acts as a guarantor for the remaining deposit amount. For example, if you have a 5% deposit the government would guarantee the remaining 15% to reach the required 20%.
The Big 4 banks and select lenders offer LMI waivers for professionals. If you are looking to take advantage of this incentive it is important to check that the lender you are considering offers this saving.
Bear in mind whilst having your LMI waived is a significant saving there is more to a home loan that needs to be considered. Make sure you also compare interest rates, loan fees and features before settling on a home loan.
This is where working alongside a mortgage broker can be highly beneficial. As property finance specialists, we have access to specific information on LMI waivers for professionals. If you are considering a home loan and would like more information on the potential savings available to you, contact the team at Townsend Wealth today.
