If you are borrowing more than 80% of the purchase price of the property, chances are you will need to pay Lenders Mortgage Insurance (LMI).
LMI is a premium that the borrower pays to protect the bank from losses. It’s important to realise that LMI does not protect you, the borrower. LMI protects the bank. You pay the premium, but receive no protection.
LMI examples:
- Borrow $500,000 at 82% LVR — LMI c. $2,700
- Borrow $500,000 at 88% LVR — LMI c. $6,300
- Borrow $500,000 at 92% LVR — LMI c. $12,500
- Borrow $800,000 at 92% LVR — LMI c. $28,000
There are avenues of relief. You may qualify for an LMI waiver if you are a doctor, pharmacist, registered nurse, accountant or lawyer. The First Home Guarantee also offers a way to avoid LMI for eligible Kiwis.