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Homeowner’s Code
Real Estate SecretsLenders Mortgage Insurance (LMI) can be a significant cost when purchasing a home with a deposit of less than 20% of the property’s value. This insurance protects the lender in case the borrower defaults on their loan, but it does not benefit the borrower in any way. Fortunately, there are ways to avoid paying LMI and save a substantial amount of money in the process. In this article, we will explore some strategies that can help you sidestep LMI and keep more money in your pocket.
Save for a Larger Deposit
One of the most effective ways to avoid LMI is to save for a larger deposit. Lenders typically require borrowers to pay LMI when their deposit is less than 20% of the property’s value. By saving up to reach that 20% threshold, you can avoid the need for LMI altogether. While it may take longer to accumulate a larger deposit, the savings from not having to pay LMI can be substantial.
Explore Government Schemes
Another option to avoid LMI is to explore government schemes that are designed to help first-home buyers. In Australia, for example, the First Home Loan Deposit Scheme allows eligible first-home buyers to purchase a property with a deposit as low as 5% without having to pay LMI. By taking advantage of such schemes, you can avoid the hefty cost of LMI and achieve your dream of homeownership sooner.
Consider a Family Guarantee
If you have family members who are willing and able to help, you may be able to avoid LMI by using a family guarantee. This involves using a family member’s property as security for your loan, allowing you to borrow up to 100% of the property’s value without paying LMI. While this option requires careful consideration and trust between family members, it can be a viable way to avoid LMI and save money in the long run.
Shop Around for Lenders
Not all lenders charge the same rates for LMI, so it pays to shop around and compare different lenders. By researching and comparing LMI premiums from various lenders, you may be able to find a lender that offers lower rates or even waives the need for LMI under certain conditions. This can result in significant savings over the life of your loan, so it’s worth investing the time to find the best deal.
Consider LMI as a One-Off Cost
If avoiding LMI altogether is not feasible for you, consider viewing it as a one-off cost that allows you to enter the property market sooner. While paying LMI may seem like a burden initially, it can be offset by the potential capital growth of your property over time. By looking at the bigger picture and considering the long-term benefits of homeownership, you may find that paying LMI is a worthwhile investment in your financial future.
Conclusion
Avoiding Lenders Mortgage Insurance can save you thousands of dollars when purchasing a property. By saving for a larger deposit, exploring government schemes, considering a family guarantee, shopping around for lenders, or viewing LMI as a one-off cost, you can minimize the impact of LMI on your finances and achieve your homeownership goals more affordably. Remember to weigh the pros and cons of each strategy and choose the option that best aligns with your financial situation and long-term objectives.
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