Lenders Mortgage Insurance (LMI) is a type of insurance that protects a lender against financial loss in the event that the borrower is unable to fulfil their home loan repayment obligations, resulting in the property being repossessed and sold.
It is important to note that LMI covers the lender, not the borrower or their guarantor.
Frequently Asked Questions
When is LMI Required?
If you take out a home loan with less than a 20% deposit, you’ll have to pay lenders mortgage insurance (LMI).
How much does LMI Cost?
The cost will vary depending on the lender, how much you are borrowing and the size of your deposit; as an example, for a $500,000 loan with a 5% deposit, LMI is estimated to be about $17,000.
When do I pay LMI?
LMI premium is a one-off, non-refundable fee which is paid at loan settlement. The premium may be included as part of the loan amount or paid up front. Your lender will be able to provide more information about what payment options are available.
What are the benefits of LMI?
LMI allows those with a low deposit to own a home sooner. Because the lender is able to pass on the risk to their mortgage insurer, they are more likely to offer loans to borrowers who may otherwise have difficulty qualifying, such as low income earners, low equity and high risk borrowers.
What happens if I refinance?
An LMI policy is not transferable to another lender, which means if you decide to refinance your home loan, and are still borrowing over 80% of the property’s value, you will be required to pay LMI again.
How can I avoid paying LMI?
If you have a deposit of 20% or more, you will not have to pay Lenders Mortgage Insurance. Alternatively, you may be able to avoid paying LMI if you have a guarantor. A guarantor is someone who can offer property they own as additional security, adding sufficient equity to lend at 80%. There are pros and cons around using a guarantor, we recommend seeking legal advice before becoming or appointing a guarantor.
For more information on Lenders Mortgage Insurance and how it may affect you, contact us today.