Can LMI Be Waived On An Investment Property
Yes, Lenders Mortgage Insurance (LMI) can be waived on investment properties for doctors and medical professionals.
Most borrowers have to pay LMI if they borrow more than 80% of the property value. But doctors can usually borrow more without paying LMI, because they generally have a high income and they can often easily build up an investment portfolio, so they present the banks with a high chance for repeat business.
To qualify for waived LMI as a doctor, you must:
- Have at least a 10% deposit, which means you’re borrowing 90% or less. We know lenders who can go higher for certain medical professionals.
- Be registered as a doctor in Australia
- Be working as a doctor in Australia
There is no minimum income threshold for most doctors to be eligible.
What Are The Benefits Of Waived LMI?
The biggest benefit of waived LMI for doctors and other medical professionals is you can build your property portfolio faster with a smaller deposit.
- The loan approval process is faster, as you don’t have to wait for the insurer to approve your application.
- With waived LMI, you can purchase multiple investment properties with a larger Loan-to-Value Ratio (LVR).
- You can use the savings to pay for other upfront costs of purchasing, like stamp duty and loan fees.
- You don’t need to wait to gain and realise profit from capital growth.
Capital Growth Benefits
You don’t have to worry so much about higher loan repayments after making a small deposit, as the income from your growing portfolio of properties offsets the higher repayments. For example, let’s assume you want to buy an $800,000 investment property and you’ve saved $160,000.
Option 1: Buy at 80% LVR to avoid LMI
For most borrowers, saving a 20% deposit is the way to avoid LMI. So, if you used the $160,000 to make a deposit on one investment property worth $800,000, your interest-only monthly repayment for 10 years is $2,933.33. (Assume a 5.5% interest rate) Assuming average capital growth of 8% a year, the capital growth for the property will be $927,140 after 10 years, which is $92,714 a year. After 10 years, the total value of the investment property would be $1,727,140.
Option 2: Buy one investment property at 90% LVR
In this scenario, since you know you can get waived LMI, you use only $80,000 to buy one investment property. This brings your LVR to 90%. Your interest-only monthly repayment for 10 years is $3,300. The capital growth for the investment property would be the same as in the first scenario, assuming the same growth rate of 8% – $927,140 over 10 years.
Option 3: Buy two investment properties at 90% LVR
In this scenario, you build your property portfolio faster by using the $160,000 to buy two investment properties valued at $800,000 each, with a deposit of $80,000 on each.Your total interest-only monthly repayments for 10 years would be $6,600. Assuming that same 8% growth rate, the capital growth would double, so it would be$1,854,280 for 10 years, which is $185,428 a year. After 10 years, the total value of the two investment properties would be $3,454,280.Compared with the first two scenarios, you earn twice as much ($1,854,280) in capital growth, while spending only about $408,000 more in repayments.
How Much Are You Saving On LMI?
LMI differs according to the amount you’re borrowing, which lender you choose and where you’re buying. Here’s an estimate of how much it costs at different LVRs.
For an $800,000 investment property, you save:
| LVR | Loan Amount | Property Value | LMI Premium |
|---|---|---|---|
| 95% | $760,000 | $800,000 | $38,033 |
| 94% | $752,000 | $800,000 | $36,101 |
| 93% | $744,000 | $800,000 | $34,601 |
| 92% | $736,000 | $800,000 | $31,705 |
| 91% | $728,000 | $800,000 | $30,113 |
| 90% | $720,000 | $800,000 | $20,600 |
For a $1 million investment property, you save:
| LVR | Loan Amount | Property Value | LMI Premium |
|---|---|---|---|
| 95% | $950,000 | $1,000,000 | $47,541 |
| 94% | $940,000 | $1,000,000 | $45,127 |
| 93% | $930,000 | $1,000,000 | $43,252 |
| 92% | $920,000 | $1,000,000 | $39,632 |
| 91% | $910,000 | $1,000,000 | $37,641 |
| 90% | $900,000 | $1,000,000 | $25,750 |
For a $1.5 million property, you save:
| LVR | Loan Amount | Property Value | LMI Premium |
|---|---|---|---|
| 95% | $1,425,000 | $1,500,000 | $78,489 |
| 94% | $1,410,000 | $1,500,000 | $74,490 |
| 93% | $1,395,000 | $1,500,000 | $71,305 |
| 92% | $1,380,000 | $1,500,000 | $65,363 |
| 91% | $1,365,000 | $1,500,000 | $62,166 |
| 90% | $1,350,000 | $1,500,000 | $42,387 |
(Note the substantial drop in LMI as LVR declines from 91% to 90%.)
Use our LMI calculator to see how much you can save with waived LMI, then call our mortgage brokers to find out if you qualify. Call us on 1300 889 743 or enquire online
.Expert Tips For Doctors To Grow Their Property Portfolios
Many doctors end up building large property portfolios, which can potentially end up earning them more money than their career. Here are some things to keep in mind if you’re looking to build your portfolio:
- Lenders often have exposure limits or other restrictions so most high-net-worth doctors end up having more than one lender to service their needs.
- As you start adding more properties to your portfolio, seek advice about the Loan-To-Value Ratios in your portfolio. There’s no one-size-fits-all approach.
Speak to a medico loan specialist at Home Loan Experts. We will help you:
- Save thousands of dollars in waived LMI
- Negotiate a competitive interest rate
- See if you can avoid LMI at higher LVRs
- Structure the loan so you can take advantage of LMI waivers and pay off your investment loan faster
- Get free property reports so you know what’s happening in Australia’s property market and see if you can use equity for your investment purchase.
- Find creative solutions to cater for small deposits and short-term ABNs, especially if you’ve transitioned from PAYG to self-employed.
Time is of the essence when it comes to building a property portfolio. Buy properties faster and build your property empire with Home Loan Experts. Call us on 1300 889 743 or enquire online today.