Lenders’ Mortgage Insurance (LMI) is required to be paid by a borrower you borrow more than 80% of the value of the property for standard loans, or 60% of the value of the property for Low Doc loans.
These days it is getting more and more difficult to save a 20% deposit for buying a property. Therefore, it becomes a balance of how much longer it would take to save versus the lost opportunity waiting out this time as house prices continue to rise. Loans with LMI are therefore a very useful tool available to allow people to buy property with as little as 5% deposit.
LMI is an often mis-understood cost in the purchase of a property. Most Australians don’t understand that their policies favour lenders, not borrowers. CBA explain it best:
Lenders’ Mortgage Insurance (LMI) is a premium payable by the borrower that protects the bank against the potential loss we may incur if you are unable to repay your home loan. If the security property is required to be sold before the loan is repaid, the money received from the sale may not cover the full amount that you owe us on the loan. In this case, we can make an insurance claim to the LMI provider to cover any loss we make. However, you are still legally responsible for repaying the amount outstanding under the loan contract, because you are not protected by the LMI.
The LMI premium applicable is payable upon funding of your loan. The LMI premium can either be paid upfront. However, by far the most popular choice is to capitalise it into the loan, which means payments are made over the life of the loan.
Premiums varies depending on the loan amount and LVR. In the same way car insurance varies by provider LMI premiums very by lender.
If you would like to know more or to get a LMI quote please contact us.