This might be a bit of an unpopular opinion, but there’s a very good reason behind this madness……
The short answer to why I believe LMI is the greatest gift a first home buyer can receive is a simple one. It helped me buy my first property in a market that was beyond reach. Plain and simple, LMI gets you into your first home quicker, and for most people, its the only way how.
What is leaders mortgage insurance?
For those who aren’t sure, LMI is a one-off fee that you are charged by your lender if you dont have a 20% deposit. It’s designed as an extra piece of protection to the lender in case you default on your mortgage (can’t repay).
In reality, a 20% deposit is near impossible to save. The median house price on the Sunshine Coast, is $550,000 – a 20% deposit to purchase this house and not pay LMI, would mean you need to save $110,000! Pretty ridiculous right?
HERE’S HOW I GOT LENDER’s mortgage insurance to work for me not against me.
When I purchased my first home in 2017 I spent two years prior completely dedicated to saving a house deposit, this is two-minute noodles every night dedicated. I wanted to buy a house more than anything in the world.
In two years I had saved close to $30k.
At this rate it would have taken me more than 5 more years to reach the 20% deposit in the example above. I couldn’t possibly continue to live how I wanted to live whilst doing this.
This is where LMI became my best friend. With my 30k plus the first home owners grant of 15k I had enough in my corner to make my first move at property.
I purchased my first property for $370,000 – a brand new 3 bedroom townhouse, close to where I wanted to live and close to work. With this I was charged just over $4,000 in LMI.
Now just to clarify, this $4k payment is not a bill that gets sent out in the mail, that you have to stick on your fridge and circle the due date on your calendar. This amount was covered behind the scenes by my deposit and FHOG and magically incorporated into my mortgage (not actually magic, my broker did this).
Here’s the best bit…. My property grew in value by $20k in the first year. That’s 20k worth of equity in my back pocket. If you’re keeping up here, in the same year trying as hard as I could at MOST I would have been able to save another $15k (with still 4 years to go to avoid LMI)
My property did the savings for me & completely covered what I spent in LMI.
WHAT WOULD HAVE HAPPENED IF I TRIED TO SAVE TO AVOID LMI?
Now, the extra piece of this equation is that with the same property I wanted to buy is now worth $390,000 – my savings would have to move quicker than the rate the property was growing. Remember the 20% is based on the value of the property your wanting to buy.
The dangers of trying to save to avoid LMI is that you are literally saving yourself out of the market. Average house prices are growing at 7% per year. The same property you wanted to buy for $550,000 is now worth $588,500 – the 20% deposit that you needed has just gone from $110,000 to $117,700 – and this is happening each year that you’re saving.
If you would like to know whether you might be financially able to get into the market now, take our assessment below and set a no obligation appointment to go through your options.