Is Loan Mortgage Insurance good or evil?


Almost everyone wants to be able to buy a home sooner rather than later, however saving the expected 20% deposit is far easier said than done.  Let's face it - with Melbourne’s median dwelling price now $563,000, saving a deposit of $112,600 plus purchase costs is no easy task, and would take strong discipline and many years!

Of course by the time you have saved that amount housing prices may have risen substantially, re-setting the required deposit to a still higher level.  I have known of prospective home buyers delaying purchase to save the desired 20%, only to find the prices have been rising faster than they can save, putting them further and further behind.  Luckily we have Loan Mortgage Insurance (LMI) to solve that problem.

Buyers should always be aware of the costs, and avoid paying LMI where possible, however its availability is in fact of major benefit to purchasers, and can be used to great advantage. 

LMI reduces the lender's risk, allowing you to purchase your dream home with as little as 5% of the purchase price.  Many first home buyers would never manage to climb onto the property ladder without LMI.  It can also open up many possibilities for subsequent home upgrades - better location, larger house, ability to do renovations - simply put, LMI brings you that much closer to achieving your homeownership dreams years earlier than would otherwise be possible.

Note the benefits also extend to purchasing investment properties, creating opportunity to build your personal wealth sooner.  Many take advantage of this as part of building wealth for retirement.

Yes LMI is indeed ‘good’, and should be considered an essential part of your armoury in the continued ‘Great Australian Dream / Pursuit’ of home ownership.