Lenders’ mortgage insurance, also known as LMI, is one of the much-maligned costs associated with taking out a home loan as it can easily add thousands of dollars when buying a property.
Add to that the fact LMI protects only the lender, and it becomes clear why many homebuyers desire to have this cost waived.
You might be able to save thousands by joining certain professions. Find out below how some professionals can dodge the hefty expense that comes with lenders’ mortgage insurance.
Why do lenders require lenders’ mortgage insurance?
Lenders require LMI if the amount being borrowed is more than 80% of the property’s value. Lenders believe that borrowers with lower monthly payments and a smaller deposit are more likely than others to default on loans.
LMI providers also perform background checks to assess borrowers’ ability to pay monthly repayments. Lenders can feel confident that the borrower will be able to pay the monthly mortgage payments.
How is lenders’ mortgage insurance calculated?
Every insurer can calculate LMI premiums in a different manner. The cost varies depending on the size of the loan, deposit amount, loan type, and borrower’s employment status.
Our LMI calculator can be used to determine how much you’ll pay over the life of your mortgage.
Who can access lenders’ mortgage insurance waivers?
LMI providers are more inclined to lend more money to those who work in high-paying or highly-demanding occupations. Doctors, dentists and attorneys are examples of low-risk borrowers. They might be eligible for an LMI waiver. If you are a member of one of these professions, you may be eligible for an LMI waiver.
If you are a doctor, you can have LMI waived for loans of up to $4.5m at 100% of the property’s value as long as you are a member of an accepted industry organisation such as the Australian Medical Association (AMA). It also pays to be on the list of “preferred medical professionals,” – which includes surgeons, dentists, optometrists, pharmacists, chiropractors, and veterinarians.
LMI waivers cannot be granted to lawyers who are not members of relevant organizations. A waiver may be granted to you if your income is at least $150,000 annually as a solicitor, judge, barrister, or lawyer. The maximum loan limit is $2m and this should not be over 90% of the home’s purchase price.
Just like legal professionals, accountants can avoid paying for LMI for loans not exceeding $2m and 90% of the property’s worth. But, you must belong to a relevant industry association. An actuary, auditor or financial manager with at least $150,000 in annual income is required. Your rental income will also be considered.
4. Mining specialists
One of the highest-earning professions in Australia, specialists in the resource, energy, and mining industries, including geophysicists, geologists, quantity surveyors, and mine surveyors, can waive the LMI for loans amounting to $2m at up to 90% of the property’s value. But you must make at minimum $150,000 per annum.
5. Professional athletes
If you are a professional athlete, an agent or manager must be an accredited agent to qualify for the LMI waiver. Your home loan should not exceed $2m and 90% of the home’s worth and your annual income should also not be below $150,000.
6. Entertainment industry professionals
Professionals who make at least $150,000 a year in fashion, theatre or film can have their LMI waived. This is subject to the following conditions: the maximum loan amount cannot exceed $2m, and the property’s value must not exceed 90%.
If you don’t meet these criteria, you will not be eligible to receive an LMI waiver. Lenders expect borrowers to have good credit records, regardless of their profession.
Why is it so that LMI waivers may be available for certain professionals and not for others?
Lenders will consider you a low-risk borrower because you have a high income. Lenders will look at you as being able to borrow large amounts of money, and be able make timely payments. Lenders also expect you not to default on any payments.
High-net-worth professionals often belong to a network that also includes high-earners from their field. Positive experiences with lenders can lead to recommendations for other co-workers. Lenders have the opportunity to increase their customer base by referring high-paying customers or those with low risk.
What happens if you don’t want to be a lawyer, doctor or accountant?
Not belonging to these high-earning professions does not necessarily mean you have to pay lenders’ mortgage insurance. It’s possible to get around it.
LMI is best avoided by saving enough money to cover 20% of your deposit. This amount might be more than what LMI costs, but if you’re already saving enough and close to your goal amount, it shouldn’t be a problem.
You may also be able to get a guarantor. Although your parents or guardians can serve as guarantors for you, they must be responsible for your payments.
First-home buyers may be eligible for the First Home Loan Deposit Scheme. (FHLDS), which provides a government guarantee that waives LMI fees up to 5% of your deposit, is available. If you are a single parent, you can also get the Family Home Guarantee. You can use this to buy a house for as little as 2% deposit.