Anyone who’s done some research on property investing would have come across the term “lenders’ mortgage insurance” (LMI), which is set up to protect the lender if you were to default on loan repayments. It’s usually a one-off fee for those investors who borrow more than 80% of the property’s value.
How much you pay for that type of insurance depends on a number of factors – like where you borrow, the size of your home loan, your deposit amount and even your job. But LMI is added onto your loan and is probably going to be less than five dollars per week in extra interest.
Many first-time investors try to avoid paying LMI, but you can actually use it to create even more wealth.
To give an example, say you have $100,000 in cash or equity for a deposit. If you try to avoid paying LMI by putting down a 20% deposit, then you can buy ONE $500,000 property.
However, if you split your deposit and pay only 10% but buy TWO properties, you instantly have $1 million worth of investments.
By opting into the lenders’ mortgage insurance, you now have two properties increasing in value and your gains over time will be greater. The bottom line is: don’t be scared of using LMI to your advantage, as you could make more money from whatever deposit you have.
*The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Dwyer Property Investments recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.