If you are aiming to buy an investment property but the deposit you can afford to put down is less than 20 percent of the property’s value, you will almost certainly have to take out lenders’ mortgage insurance (LMI).
Typically, investors see this as yet one more cost they have to bear — but, if you follow the right steps, you can turn LMI to your advantage.
LMI, of course, is vital for a loan provider, as it protects them, should your circumstance change and you found yourself unable to pay the mortgage on your property.
LMI is calculated in different ways, depending on the insurer. Your premiums will vary based on the size and type of your loan, the deposit amount, and your employment status. Some property investment websites have LMI estimators, which can help you assess the different options. Your mortgage broker may also be able to help.
If you work in a high-demand, well-paying industry, you probably won’t have much difficulty finding an LMI provider. In fact, some providers regard people like doctors, dentists and lawyers as being in the low-risk category and, as such, may even waive the LMI on a loan.
As previously stated, LMI provides a safety net for lenders in the case of people borrowing more than 80 percent of a property’s value, but some investment experts believe investors should see LMI as an “investment rather than a cost”.
For instance, it can help you to buy a property quickly instead of waiting to save up the full 20 percent deposit and potentially missing out or being priced out later down the track. In such instances, it’s helpful to calculate the cost of capital growth and LMI versus staying out of the market in order to keep saving the deposit and missing out, which can cost more than the LMI premium.
In short, if you are looking to grow your investment portfolio, LMI can help you secure your next property without using too much equity from another property. This can help you add more properties faster and with a smaller deposit.
* This article does not constitute financial or legal advice. Please consult a professional financial and legal adviser before making a decision.