Lender’s Mortgage Insurance (or LMI as it is commonly referred) is an often misconstrued term when discussing home loans. LMI is basically a once-off insurance premium paid by the borrower that protects the lender – not themselves – in the event that the borrower defaults on the loan and the security property is repossessed and sold. If the sale proceeds are insufficient to pay out the loan and associated costs, the LMI provider will pay the lender the shortfall to the bank.
The majority of lenders will only lend up to 80% of a property value without LMI (60% for Low Doc loans). By utilising LMI lenders will often lend up to 95% of a property value (80% for Low Doc loans) thus reducing the deposit required substantially.
LMI premiums differ between lenders and can be determined by a number of factors:
- Loan amount.
- The type of security (property).
- Purpose of the loan – is it owner-occupied or for investment?
- Is the borrower self-employed?
- Is the borrower a first home owner?
- Where is the property located?
LMI premiums can be many of thousands of dollars however they can often be fully or partially incorporated into the loan amount. LMI premiums are generally not transferrable to a new loan nor are the premium refundable – a fact often overlooked by the media when they encourage people to switch lenders.
Disclaimer: Loans are approved or declined on their merits by the specific lender and a loan approval is not guaranteed. We believe the information on this page to be correct. However we can give no warranty to this effect and expressly disclaim any liability for loss or damage by any person acting upon the information provided herein.