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What is lenders mortgage insurance?

What is lenders mortgage insurance?

When buying a home, you may come across the term 'Lenders Mortgage Insurance' or 'LMI'. This type of insurance is commonly payable when purchasing a new home with less than 20% deposit.

Lenders Mortgage Insurance is designed to protect the lender. It ensures the lender is covered if in the instance the borrower was unable to meet the loan repayments and the net proceeds from an enforced sale was not enough to cover the loan.

If your home loan is worth more than 80% of the purchase price of your home, your lender may require you to pay Lender's Mortgage Insurance.


Are there any benefits to LMI?

Although it may seem that there's no benefits to Lenders Mortgage Insurance for the borrower, LMI does reduce the lenders risk. Therefore the lender is able lend a larger amount or approve finance without a large upfront deposit.

Lenders Mortgage Insurance gives the lender more confidence when offering a home loan. This often enables some lenders to lend up to 95% of the value of the property you intend to purchase. This means that even with a smaller deposit, you can have the potential to purchase your first home sooner.


How much does LMI cost?

Each lender has their own policy, however, the cost of Lenders Mortgage Insurance will vary depending on the loan amount and percentage of the property value that is borrowed. Many lenders will include the premium in the loan amount which is a one-off, non-refundable fee paid at loan settlement.


How can LMI work for you?

Property prices can increase and overtake your ability to save. Instead of spending thousands more paying rent and trying to save a higher deposit, LMI can help buyers to get into the property market sooner with a smaller deposit.

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Disclaimer: The articles featured on this website are for general information purposes only and designed to help educate our readers. Any financial decision should be considered wisely with the help of a qualified professional and based on your own personal goals and financial circumstances. Always seek proper advice before committing to any course of financial action. This is information is not to be deemed as advice. View our full disclaimer here.