What Is Lenders Mortgage Insurance (LMI) and How Does It Affect My Home Loan

Lender’s Mortgage Insurance – Does It Apply To Me ?

The odds are that you’ve stumbled across the term lender’s mortgage insurance and you’re wondering what it stands for. Well, you’ve come to the right place. This article will clarify this term, so that you can understand what it is, the concept behind it and the approximate costs. Let’s get started!

What Is the Purpose of a Lender’s Mortgage Insurance?

Originally, LMI (lender’s mortgage insurance) was implemented in 1965. Its purpose was to make it easier for Australians to buy their own house, although they didn’t have a sizeable deposit. Its purpose is to safeguard lenders, in the case in which the borrower isn’t capable of coping with the mortgage repayments. This is primarily why many lenders charge mortgage insurance: in order to minimise the risk of not getting their money back.

When Is the Lender’s Mortgage Insurance Necessary?

In case you plan on borrowing more than 80 percent of the value of the property, then the odds are you’ll have to pay for lender’s mortgage insurance. Thanks to LMI, homeowners can have access to financing, even if otherwise they might not get approval for a loan as easily.

How Much Does a Lender’s Mortgage Insurance Cost?

The cost of the LMI will depend on several aspects. For one thing, the sum of money you want to borrow plays an important role in the equation. At the same time, the lender you collaborate with can charge more or less, depending on their policy. The size of your deposit will also matter. This is why it’s best to browse for several offers before choosing a particular loan as different lenders have distinct lending criteria – this could be more or less advantageous to your specific needs.

On a different note, it might be a good idea to use an LMI calculator. In this way, you can gauge the approximate cost of your insurance premium.

What Happens If I Default on the Loan and the Property Is Sold?

If you, as the borrower, aren’t financially capable of making the repayment for the loan, and there’s no solution to this problem, the property will most likely be sold. This is done in order to cover the value of the loan. Depending on the value of the property and the marketplace, your house might be sold for less money, as it happens many times. In this case, the LMI insurer will make up for the cost according to the specifications of the LMI policy. Afterwards, you, as a borrower, will have to pay that given sum directly to it.

The Bottom Line

Hopefully, we’ve shed some light on the topic of the lender’s mortgage insurance. In case you have other questions on the topic, feel free to include them in the comment section below or contact our office to discuss your finance requirements. Contact us on on 02 9121 6247 or submit your scenario online.


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