Posts Tagged ‘Loan to value ratio’

Use an LMI Calculator to Accurately Determine Loan Expenses

March 3rd, 2010 38 Comments
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When one would like to get a home loan in Australia, often it involves LMI or Lenders Mortgage Insurance.  Lenders mortgage insurance is as worded, protection for the lender or bank.  Basically it is a premium paid by the borrower to insure the bank in case the borrower is unable to make the necessary repayments.  If you are very behind with your loan repayment, your property may be sold, and if the sale of the property is not enough to cover the loan, then it is the insurance company who answers for the deficit.  However, just because it is made for the benefit of the lender, it does not mean that it cannot be helpful to the borrower.  It can be of help to the borrower when they don’t have enough savings for deposit, and enable them to enter the real estate market earlier.

LMI is also used when your loan to value ratio is at or above 80% of the value of the property.  Loan to value ratio or LVR is another term that is intimately connected to LMI.  Where there is a high enough LVR, usually LMI is required.  To illustrate LVR, for example you would like to purchase a property worth $1,000,000.00.  The 80% LVR that would require LMI is simply 80% of the $1,000,000.00, which is $800,000.00.  Thus when you get a $800,000.00 loan then you will be required to pay LMI, at a very high premium.

Another problem with LMI is that there are so many providers of this type of insurance.  Because there are many providers, a borrower is often at a loss on how to compute the costs in relation to LMI.  To add and complicate things, banks and lenders also do not disclose who their LMI provider is, thus the borrower is left in the dark as to how much LMI would cost.

Thankfully there is an LMI Calculator out there available in order to help the borrower accurately determine how much they would need to save to pay for the LMI premiums, and the other costs in relation to any loan they wish to get.  This will ensure that you have enough funds prepared when applying for your home loan.