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Lenders Mortgage Insurance: A Property Investor's Best Friend
LMI (Lenders Mortgage Insurance) is often misunderstood and most of the time is thought of in a negative way. However, with the right strategy in place it can be a useful tool for expanding your property portfolio in a much shorter timeframe. This of course can put you in a position to net greater returns in an increasing market as you will have more properties in your portfolio.
What is LMI?
Lenders Mortgage Insurance, commonly referred to as LMI, usually applies when you borrow more than 80 percent of the value of your property, new or established.
Lenders are usually not comfortable lending more than 80 percent of a property's value and therefore take out insurance to cover this perceived risk.
It is important to note that this insurance (LMI), is not Mortgage Protection Insurance which will usually cover a borrower’s mortgage in the event of death, sickness, unemployment or disability.
LMI is an insurance that covers the Lender whilst offering zero cover to you.
Why use LMI?
At this point you are probably wondering why you would pay the LMI premium if it only protects the Lender. Using LMI gives you the chance to borrow more and therefore requires a much smaller buyers contribution to complete the purchase. Some lenders are currently allowing you to borrow up to 95 percent of the purchase price and to also borrow the insurance premium on top, which brings your L.V.R. (Loan to Valuation Ratio) up to around 97 percent of the value of the property.
Is paying LMI a bad thing?
LMI is not necessarily a bad thing, as it allows you to get into the market much sooner with a lower buyers contribution.
Some home buyers struggle for years to get into the property market because while they are working hard to increase their savings the property prices are going up at the same time and in some cases preventing buyers from ever buying.
Using LMI can also allow you to purchase a higher priced home and with careful selection of the right property in the right location can deliver extra capital gains on your property. The extra capital gains can far outweigh the LMI premium, which can turn what was perceived to be an extra cost into a worthwhile investment return.
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About Darryl Simms
Darryl Simms specialises in helping individuals invest in property for less than a latte a day, reduce their tax and create enjoyable lifestyles.
As the Founder of Latte Property, Darryl willingly shares his extensive knowledge built up over the last 25 years to help clients create wealth through property investment.
Latte Property has a large following of successful property investors who have enjoyed professional guidance in the purchase of quality new apartments, new townhouses and new homes.
Darryl is also the Author of “50 Must Know Property Investing Tips” and is currently busy writing his next Property Investment publication.
Darryl’s favourite quote is:
“Try not to become a man of success, but rather try to become a man of value” – Albert Einstein
Contact Darryl at www.latteproperty.com.au/ask-darryl
Fast-Track your property portfolio using LMI
Register Here For Our Free Video Series
Written by Darryl Simms - First published on Linkedin Pulse