What is Lender's Mortgage Insurance (LMI)?

A generation or two ago, low deposit loans were a rarity. Homebuyers were required to save a minimum deposit of 20% of the purchase price before they could borrow to purchase their dream home. Just as it is today, saving a deposit of 20% is not an easy task. Whilst you are squirrelling away your money for a deposit, the market continues to rise along with the cost of living, making that 20% target seem so distant.

So, enter Mortgage Insurers, who provide the guarantee that you can buy your home today with a deposit that is less than 20%. With the payment of a one off, upfront premium, you could be on your way to home ownership. When spread over the life of the loan, and combined with potential property growth, this premium can be an inexpensive method of entering the home ownership market sooner rather than later.

Not to be confused with Mortgage Protection Insurance, LMI does not give you any protection should you lose your job or become ill. It protects the lender should you default on the loan. In the event that the lender is forced to sell the property under a Mortgagee sale, the Mortgage Insurer will cover the Lender for any shortfall should the sale price not cover the outstanding debt.

Although the deposit size will vary, most lenders will accommodate loans with LMI and it is possible to have your LMI premium added to your loan with the majority of lenders. Some lenders will lend up to a maximum of 90% of the property value, others 95%, whilst a few will go to 97% and beyond.

For more tips and information on home ownership, call our team today on (08) 6144 3230 for a confidential chat.

Posted in: Insurance

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