Did you know your occupation could save you thousands on your home loan? At i Lend Finance Solutions, we specialise in home loans and mortgages and know it gets more complex and goes beyond just rates. We want to share some of our knowledge and in this post, we talk about how being a professional (such as a doctor, lawyer etc.) could mean that lender mortgage insurance is waived.
WHAT IS LENDER MORTGAGE INSURANCE (LMI)?
Also known as LMI, this is used as a way that your lender/bank can get protection, in case you default and are unable to pay back your home loan or mortgage. Typically, you can incur LMI costs if you borrow over 80% of the value of the property you are interested in purchasing.
While it may appear that there are no benefits to LMI for the borrower, the existence of LMI reduces the lender’s risk, meaning that the lender can lend a larger amount or approve a home loan without the borrower having to provide the 20% deposit. Many people prefer to pay the LMI premium, rather than save for a few more years or pay higher interest rates.
WHAT BANKS ALLOW THIS AND HOW CAN YOU GET THE DISCOUNT?
There are a number of lenders offering these special home loans. You can apply for this discount at major banks such as Commonwealth Bank, ANZ, Westpac or BOQ (their professional packages can allow for mortgage insurance to be waived up to 90%). But most lenders don’t offer these discounts up front and can even at times be harder to obtain when you ask for the special discount directly. This is why it’s suggested you go through a mortgage broker like us. We know a few ways to help move the process along faster and smoother so you can get a special discount without any hassles or stress.
- When banks look at borrowers, they look favourably on professionals such as doctors and lawyers. But they’re not all, if you earn around $150,000 a year or more, for example you’re a veterinarian, accountants, engineer (of the mining and resource sector), financial planner, etc., you too would be considered as a ‘preferred borrower’ and have a greater chance at avoiding or paying a smaller amount in LMI.
- Higher paid professions are less of a risk to lenders, as the chance of the loan being paid back is much more secure. Doctors/people borrowing less than 75% of the property value and people borrowing over $500,000 should all be using a mortgage broker to shop around for the best interest rate – most even unheard of in generally advertised interest rates.
- Teachers and nurses are also considered significantly lower risks for banks than other professions. Both have stable employment and tend to be conservative with their spending habits. While banks do not offer special discounts for these professionals they will bend their lending guidelines to approve their loans.
OTHER WAYS TO REDUCE LMI
Not being considered in the ‘professional’ category can make it harder to receive these special discounts on offer. There are still a few other ways you could reduce your LMI costs:
- Get a guarantor – they could help reduce the amount you borrow and mean your deposit is greater than 20% therefore avoiding LMI. Even if they can’t guarantee the whole amount you could still pay less LMI.
- Borrow smaller amounts – this means the loan would be smaller, and therefore your LMI bill would be smaller or non-existent.
- Pay off your loan faster to avoid ongoing interest and fees – for example, try making your repayments more frequently than once a month, in effect reducing the life of your loan.
WHAT CAN WE DO FOR YOU?
As experienced finance lenders and mortgage brokers at i Lend Finance Solutions, we’ll guide you through the entire home loan process. We bring expert “in the know” knowledge and are able to tell you the likelihood of approval for your home loan. To find out if you’re ready to take the next steps into owning your next home and also ascertain how much LMI you’d need to pay, contact us today.