What is Lenders Mortgage Insurance (LMI)?

September 22, 2014
Dora Platakis

What is Lenders Mortgage Insurance (LMI)?

Lenders' mortgage insurance protects your lender in the unfortunate event of you defaulting on your home loan. When lenders agree to lend a customer money, there is a small risk that they won't get the money back if the customer is not able to meet the repayments. Although they have the house as security, if property values decline that security may not be enough to cover the outstanding loan when the lender comes to sell it.

This insurance helps lenders broaden the net of who they are able to lend to by taking some of the risk out of lending the money. It means that more people are likely to get a loan and the home they want sooner.

Lenders' mortgage insurance should not be confused with mortgage protection insurance, which covers borrowers for the payment of their mortgage instalments in the event of unforeseen circumstances including unemployment, illness or death. This insurance is paid annually and can vary depending on the outstanding balance of the loan.

How does lenders Mortgage Insurance benefit you?

Before lenders' mortgage insurance was available, lenders usually required a deposit of around 20% to protect themselves in the event of foreclosure. This was to guard against the risk of the property being sold at a price less than the outstanding amount of the loan.


With the ability to pass on this shortfall risk to an insurance company through lenders’ mortgage insurance, lenders have been prepared to accept a lower deposit and also to offer lower rates for mortgage lending than they would otherwise be able to offer borrowers.


The end result is that home loans are available to more people.

By reducing the deposit required and helping to minimise lending interest rates, many borrowers are able to purchase a home much earlier, or buy a better property, than they would otherwise have been able to afford before lenders' mortgage insurance.


If you do have a deposit of 20% or more, then you have the choice of whether to borrow more, using your available funds for other priorities such as furnishings or renovations.


For further information don't hesitate to contact Dora and her team on:

E: dora.platakis@mortgagechoice.com.au

Ph: 03 9360 5968   M: 0413 636 645

Posted in: First home buyers

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