Lenders Mortgage Insurance, or LMI, is insurance that protects the lender, not you. It’s usually a one-off payment made by the borrower at the time of loan settlement.
Why do I have to pay for LMI?
Lenders will typically lend up to 80% of the value of a property without charging LMI. If you have less than 20% deposit, then most lenders won’t lend you the required funds unless you pay LMI. Becase you have less equity in the deal, there is more risk that if you were to default the lender may not get their money back. Therefore, they take out an insurance policy to protect themselves and they charge you for it.
How does LMI benefit you?
By paying LMI, the risk to the lender is reduced. This means you can get your desired property without having to wait and save up for the full 20% deposit. In this sense at least it’s a win-win situation!
How much is LMI?
This depends on the amout of equity you have in the deal. This is knows as the LVR or Loan to Value Ratio. At 80% LVR, LMI is not applied. Most lenders will lend up to 90% LVRand in some cases 95% LVR of the valule of the property. Broadly, LMI starts low and increases. For example, for a $350,000 purchase LMI at 85% LVR is around $2,500. At 90%, LMI roughly doubles to $6,000. At 95% LVR, LMI roughly doubles again to $12,500.
Contact Luke Howard on 0428 496 694 to find out more.