LENDERS MORTGAGE INSURANCE (LMI) When considering Lenders Mortgage Insurance for a loan, it’s important to know the in’s and out’s of what it is and how to use it. WHAT IS LMI? When you go to a bank for a loan, the bank will only lend up to 80% of the value required. Over that, there is a high risk there is not enough value for the bank to foreclose on the property. Lenders Mortgage Insurance (LMI) is a premium that you pay for the privilege of borrowing more than 80% of the property value in order to reduce the deposit required for the loan. WHEN IS IT USEFUL If you have a small deposit and find it hard to save, LMI can be good to get your foot in the door with property. One property building growth is better than none. WHEN TO AVOID IT If you are an aggressive investor with the ability to get a larger deposit together through equity or savings, it’s best to steer away from LMI. Banks see you as a higher risk when borrowing under mortgage insurance and this can make it harder to borrow larger amounts of money. Some banks may also cap their lending at a certain amount of properties, due to the increased risk of LMI loans. If you intend on building a portfolio of more than five properties, with an average price of $200,000 to $300,000,you should try to avoid using mortgage insurance. DON’T USE IT IF YOU DON’T NEED IT Mortgage insurance can be a good leveraging tool but should be avoided if possible. Some banks allow LMI to be packaged into your loan, which means that paying the fee is not the issue. The concern is the longevity of building a portfolio, as LMI can restrict portfolio growth. It is much easier to revalue and refinance properties without LMI, so if you have the ability to buy without mortgage insurance you should. ASK THE EXPERTS When considering your options, speak to a specialist bank manager or investment broker to ensure you engage the best service for your situation and your overall investment goal. Have you considered Lenders Mortgage Insurance when investing? Let us know in the comments section below.
Posted on: Wed, 21 May 2014 00:00:00 +0000
Trending Topics
Recently Viewed Topics
© 2015