When you enter into a home loan you can typically borrow up to 95% of the property’s value (at a maximum). To do this we pay lender’s mortgage insurance typically – see:
From there, until you get the amount you owe under 80% of the valuation any extra borrowings will incur LMI again and the bank will restrict how much you can borrow – typically to the original loan size or perhaps 90% of the property’s value (bank dependant). Some banks may lower this LMI premium based on what you’ve already paid.
In short, LMI can be trickier to manage and estimate when you’re paying it for a second time and in an ideal world – we wouldn’t pay it twice.
So – how can we avoid LMI?
Well – the first thing we want to do is get a valuation done.
Depending on how long your property has been yours for the value of it may have increased from when you bought it due to:
- Market increases
- Renovations you’ve done to the property
There are also two ways we can get a valuation done
- An automated valuation (where the bank’s computer system looks at other recent sales in the area) unless you’ve done substantial renovations we’ll usually start here as it’s a nice easy option which means you don’t need an onsite valuation. Oftentimes if there’s been strong market activity in the area the figure will come back as a strong option. BUT sometimes bank’s won’t use these figures unless it shows you’re borrowing 80% of the property’s valuation.
- And the other option is an onsite valuation. If this is being done AND you’ve done renovations to the property since you bought be sure to point these out to the valuer so they are aware of any money you’ve spent and improvements you’ve done (but remember they’ll be quick! Valuers always are).
So what should you let your broker know?
- Exact amounts on the minimum extra you’d want to borrow vs maximum (valuation dependant)
- If you have quotes for work you want to get done or invoices, send those through
- Let your broker know any significant changes to your situation since you purchased
- And let your broker know the value you’d estimate your property would be.