LMI (Lenders Mortgage Insurance)
A one-off insurance fee the lender adds when you borrow more than 80% of value.
Lenders Mortgage Insurance protects the lender (not you) if you default on the loan and the sale of the property doesn't cover the debt. It kicks in when your loan-to-value ratio is above 80% and is usually a one-off premium paid at settlement, though most lenders let you capitalise it into the loan itself so it accrues interest. LMI premiums step up sharply at higher LVRs - 90% LVR costs roughly 2-3% of the loan, 95% LVR can cost 4-5%. It's tax-deductible over five years (or the loan term, whichever is shorter) for investment property purchases, which softens the sting. First-home buyers can sometimes avoid it via government guarantee schemes.
Worked example
Borrowing $600,000 against a $700,000 property is an 86% LVR. Approximate LMI: ~$10,000-$13,000. Capitalised into the loan, it adds about $50/month to repayments over a 30-year term.
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