When you consider that a SMALL apartment in Sydney could set you back well over half a million dollars, saving a 20% deposit ($100k+) can seem like mission-bloody-impossible!
Enter: Lender’s mortgage insurance.
Lenders mortgage insurance (LMI) may be an added expense BUT it offers you the opportunity to dive into the property market earlier, without saving up an entire 20% of the property’s purchase price as a deposit.
What the devil is LMI?
LMI protects the bank or lender, should your home loan go into default, guaranteeing that the lender will get its money back if the property needs to be sold and there is a shortfall in repaying the loan.
Whilst a 20% deposit generally provides a solid buffer against any drops in property value over the life of a loan, LMI can also provide the same protection, meaning you can purchase property with a smaller deposit! #winning
By using LMI, it means you can enter the property market with as little as 5% deposit! For example, for $500k property, this brings the deposit down from $100k to just $25k.
And, if the market is hot and property prices are rising rapidly, paying LMI so that you can buy now could be cheaper than taking the time to save a bigger deposit. In the time it takes to save a higher deposit amount, property prices may well have surged by more than cost of the insurance so, for some properties and purchasers, it can make good financial sense to purchase earlier even with the added cost of LMI, especially when you consider the rent that you would pay while you’re saving.
What you need to know
The insurance premium is generally a one-off payment, but you have the ability to roll it all up in your loan amount so that you pay for it month-by-month along with your mortgage.
There can be a big difference between premiums paid if you have, for example, a 10 per cent deposit vs. 5% deposit, so it may well be worth trying to gather together some extra funds, even if you can’t quite reach the full 20%.
Lucky for you, we are expert MFAA-accredited finance brokers! We can help you investigate your options and work out whether you should in fact buy now or save a little extra deposit!
REACH OUT, to see how we can help you fund your next move!