Whilst mortgage insurance can at first glance appear to be a cheeky money grab by greedy lenders, the plain fact is that avoidance of LMI at all costs can often be a false economy, and severely curb the acquisition of further growth assets. For me it is just a cost of doing business.
When lenders assess your capacity to borrow they look at your available funds to complete as well as your ability to make the repayments. If your aim is to grow your wealth by acquiring as many quality assets as possible, the only time that you should avoid paying mortgage insurance is when you will run out of serviceability before you run out of 20% deposits.
Although mortgage insurance premiums can be quite steep, most investors would not have to pay the premium with cash – it can easily be ‘capitalized’ or added to the loan amount. For example, you may ask for an 85% LVR, but once the premium has been added in your end LVR could be 87%.
So if you are one of those investors who have resented LMI in the past, take another look, it could prove to be a valuable tool that can help you achieve your goals much sooner than you thought.
Ian Hosking Richards is a successful property investor with a portfolio of over 30 properties. He is the CEO and founder of Rocket Property Group, a leading independent real estate agency that helps hundreds of people each year enter the property market or grow their existing portfolios.
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