The LMI Strategy That Could Save You $20K

Nerd alert! Property nerds. The home for data-driven property investors. Where we uncover Australia's hot and cold markets, latest headlines and trends. So guys, I reckon this particular episode, we're going to save thousands if not tens of thousands of dollars for a lot of people out there who didn't know this stuff.

But secondly, I reckon for anyone watching this, listening to this episode, you're going to be able to save anywhere between three to five years, if not longer, on your investment journey based on some of the mapping we've done in the past, just by staying to the end of this episode. There's lots of stuff we're going to cover that most people don't when it comes to this world of finance, and we've got the right people to do it. So I'm here with Jack. I'm here with Adrian. I'm Arjun.

If you haven't met me before, I'm one of the co-hosts here of the Property Nerds podcast. And we've got Jack from 4Acre Financial and we've got Adrian from InvestorKit, our senior portfolio strategist. So Jack, I want to jump over to you on this first one. Lenders mortgage insurance. It's taboo to some people, but I think it's the greatest thing since sliced bread.

Not the insurance, but getting the 90% loan. There are obviously costs to occur from having to pay lenders mortgage insurance when you're taking loans above 80%. But there's a list of professionals out there. And this professional base gets waivers, meaning they don't have to pay that cost and they can access higher leverage. Could you tell us some more about these professionals, who they are, what type of profession gets them, just from your side?

Yeah, so you have what's called a professional package. So like accountants or solicitors, you know, they'll get most of the... There's a fair few lenders. This is pretty well known. Like if you're an accountant or a solicitor, you know, you can get an LMI waiver.

Same as the Medeco, what's called a Medeco policy, where, you know, you'll have LMI waivers, but there's a lot of LMI waivers for Medeco that go up to 95% even. Yeah, but as well, if you're a doctor or there's other types of doctors that can get LMI waivers. And then there's like a second tier to the Medeco where you've got people that might not know that they have access to it, like nurses or what's a good one? Midwives as well. So people that...

And you'll be very surprised. So reach out if you're in the industry and you're not sure if you would qualify for LMI waiver. You might be surprised because there's a whole big list of second tier Medeco policy that you might fit the script. But... Is it 80 to 90% always or can it go from 80 to 95% with some types of properties in terms of the waiver?

Like where does the waiver end? On the Medeco, like if you're a GP or a specialist, you can go up to 95%. Yeah, wow. Which is really good. But something else worth noting in...

It's kind of similar. It's not LMI waiver, but there's essential workers policy. So essential workers usually, you know, during COVID, a lot of nurses and doctors and stuff, you could annualize the income over 100%. So generally when we're doing borrowing capacities, you'll take the base income, then you have overtime and allowances and all that. That's generally shaded to 80%.

But with an essential worker, then you can annualize the full income and use 100% of the overtime and everything. And that really opens up borrowing capacity when you do that. Yeah, that would massively. So when you've got an essential worker... And who fits under the build of essential workers these days?

What are some of them? You know, it's... The one that everyone would know would be like firefighters, police, you know, nurses, right? But recently, there's been a couple of lenders that are bringing out stuff that you, you know, I've never seen it be expanded to this level. Like bus, train operators.

Yeah, that's pretty cool. Pilots, flight attendants, counselors, social workers, aged care, disability support workers. So these are very new things that, you know, and it just really opens up their borrowing capacity. Even childcare workers, childcare workers. And if I'm not mistaken, there's also like certain sports professionals that can get it.

Yeah. And even like media personalities, like certain like media roles. So, I mean, the list is quite extensive and I'm almost positive there's going to be so many people out there that don't know like if they fall under a criteria. Now, I am going to fill your inbox up a little bit with this request, but I want to like, because the list is massive. Yeah.

How can people reach out to go, hey, I've got a mortgage. Yeah. I'd like to speak to someone and I want to know if I can get mortgage insurance waivers because that could be the ticket for them to either A, unlock equity to build a portfolio or they need cash for renovations, other things like that, and they want to access that in their home. How can people get in touch? Yeah, so just go to 4acrefinancial.

com. au. You can either book in a meeting directly there or you can put in an inquiry and someone will reach out. Perfect. Now, we'll put it in the show notes as well.

It's 4acrefinancial. com. au and it is a game changer. Now, just to make it real for people, how much money do people save for say every five or 600K purchase price when they are saving on LMI? Where does that number roughly sit?

So depending on if you're borrowing 90% or if you're borrowing 95%, so at 90%, you generally save about 2% on the purchase price. Oh, that's massive. That could be $12,000 or all the way up to close to $20,000 depending on the purchase price. Yeah. But yeah, that's huge, man, especially if you're accessing equity up to that, you know, because if you have to pay LMI, then you're cutting into the deposit and you're taking away from the wealth and the equity growth.

So yeah, it's huge. Now, one of the biggest things that me and you talk about, Adrian, and firstly, I bet you like me and you were sitting here, we're like, we're not essential workers. Like, can we be essential? We work through COVID, mate. Hey, to this day, there's still no LMI waivers for brokers, mate.

What's going on? Mate, that's funny. You're funding all of that. You're not getting it. But now look, we're not that special.

We're definitely not essential. In terms of Adrian, I want to come to you for something because this we see way too often, right? People go, I don't want to pay LMI. And look, maybe they don't get a waiver. Let's just say there's certain people because the majority don't, right?

So the majority don't get LMI waivers. I don't want to pay LMI. Jack said about 1% to 2% of a cost of doing business to get there. What's the opportunity cost for people if they're trying to go, well, I'll wait and save to get that 20% deposit and I'll then get on the market versus go pay LMI or in the professions Jack mentioned, get the waiver. How does it impact portfolios from what you've seen?

Yeah, look, it's a very common issue that a lot of clients have or a bit of a dilemma they face. And I think if I sort of run through just a couple of numbers to make it a little bit more real, we use a 600K example property comparing a 12% deposit versus a 20% deposit. Now, the difference that you actually need to create that deposit is about 48K. That's a fair bit of savings, 48K. It doesn't happen overnight.

Yeah, exactly right. And I think if we were to just use some rough sort of calculations, people or households save different amounts, but I've just taken a nice easy amount of 2000 savings every single month for the household. That's an extra two years to build up that deposit. Two years. It's a lot of time.

Yeah. And Jack, as you mentioned, LMI fee, let's call it, I'll make it nice and easy. We'll just use 10K as an example. But if you have a property that is 600K and it goes up by 5% for those two years that you weren't in the market, we're talking about 60,000 in terms of that opportunity. Missed equity of 60,000, two years of saving.

Remember, people don't even think of missed opportunity just in the cash, but there's also time in life. It's pretty big. Yeah. So it's a big, it's a huge amount when it comes to 60K of missed equity. And the cost of that is what you mentioned there, 10K LMI.

So you got to weigh it up. And this is on a very conservative 5% growth on the 600K property. A lot of people don't know this as well. If you buy in, if you go in and pay LMI on the way in, if you refinance that property without LMI within two years, you can actually get a partial LMI refund. Wow.

That's pretty interesting. And who do they go to submit that process? Is it direct to the bank? To the bank, yeah. Got it.

Got it. So you heard it here first or maybe second or third. We're just going to call it first. LMI refunds.