What is LMI?

July 10, 2015
Peter Ruddock

Lenders Mortgage Insurance, or LMI, is there to protect the lender, not you, in case you default on your loan and they suffer a loss.


LMI is a requirement when you borrow more than 80% of the value of a property (the LVR, or Loan to Value Ratio, is above 80%). It is an insurance for the lender but the borrower pays the premium.


As an example, let's assume you borrow $380,000 for the purchase of a property worth $400,000 (LVR = 95%), you default on the loan which results in the lender needing to sell your property. Due to a downfall in the property market, the lender is able to sell for $365,000 so there is a shortfall of $15,000. The insurer who provided the LMI cover will pay to the lender their shortfall of $15,000. (Note that obviously we don't plan on defaulting on a loan but be aware in a case like this, the insurer may attempt to recover from you what they gave had to pay to the lender)

 This video might help

Posted in: Tips

Contact us today.

Additional Comments? * :