What is Lenders Mortgage Insurance (LMI)?

  • Posted 16 Apr

What is Lenders Mortgage Insurance (LMI)?

When you’re buying a home, there are a lot of things to consider. It can be very overwhelming. From making sure you have building inspections, home insurance through to moving and getting settled, it can be a struggle to understand everything that comes with having a mortgage.

Lenders mortgage insurance (LMI) is one of those things that you need to be mindful and understand as you take out a mortgage.

Here at Australian Credit and Finance we believe in making sure our clients understand everything about having a mortgage. Below you’ll find more information on what LMI is and how it affects your overall mortgage.

Understanding LMI

In laymen’s terms, LMI allows the borrower to access 95% of the purchase price, meaning that you’ll pay a lower deposit than would normally be required.

In most cases, lenders will require you to provide at least a 20% deposit. But when you utilise lenders mortgage insurance, the lender is able to offer you a lower deposit home loan.

LMI protects the lender if a borrower defaults on mortgage repayments and the property has to be sold.

In the process of the property being sold, if there are insufficient funds to cover any outstanding loan amounts or other costs incurred, the lender can claim against the LMI for any shortfall.

What are the Benefits?

As the borrower, you only need to pay a small deposit, which means you can get into your hoe sooner. LMI can also be accessed for residential investment properties too.

The lender is the one who is insured, not you. So you don’t have any responsibility to pay the lender back should you run into difficult circumstances, as the LMI will take care of any shortfalls, as outlined above.

How can you Access LMI?

This depends on the lender you are using for your mortgage. Talking to a mortgage broker is the best way to determine if you can access LMI or not. Contact us if you’d like to discuss your options where you can find more details about accessing a loan.

There are some pre-qualifying requirements to be able to access LMI, and these are different for each lender, so it’s best to chat to us about your options.

Costs Involved

The cost of LMI is paid in a once only premium, and will vary depending on the amount you are borrowing.

The premium is payable at loan settlement, but can be incorporate into your overall loan amount. This is something that will depend on the lender as well.

The premium is calculated by considering your deposit amount and the type of mortgage loan you have chosen. We understand that many people will want to reduce upfront costs as much as possible, so we work with lenders to ensure that the LMI is included in the total loan amount.

GST and stamp duty are also payable. These will always be included in the total premium amount.

If you’re looking to buy a home and are interested in discussing lenders that offer LMI, contact us today to discuss your options. Call us on 1300 735 557 to chat to one of our friendly team members.

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