What is Lenders Mortgage Insurance (LMI)?
LMI is a one-off fee charged to you when you need to borrow more than 80% of the properties value.
It is insurance the lender takes out to insure itself against the risk of not recovering the full loan balance and legal fees, if the borrower was unable to meet loan repayments.
What are the Benefits of LMI?
LMI allows the borrowers to enter the market with a low deposit.
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- Support from a dedicated Home Loan Expert.
- Discounted interest rates.
- 16 hour phone support.
- A one-stop solution.
- Legal duty to act in your best interests.
What is the cost of LMI?
LMI can either be paid upfront by the borrower at settlement or it can be included in the total loan amount.
If you choose to add the LMI to your total loan amount, your loan repayments are based on the higher loan amount which includes the LMI premium.
The LMI cost will differ between lenders and usually attracts a higher interest rate on your loan.
Is LMI refundable?
LMI may be partially refundable if the loan is terminated early (usually within the first two years).
Each lender will have their own refund policies.
What happens if a borrower defaults and the property is sold?
If the borrower is unable to meet their loan repayments and there is no other resolution, the property may need to be sold to cover any outstanding loan amount.
The LMI insurer will pay the lender in accordance with their LMI policy and could then ask the borrower to repay this sum directly to them.
LMI does not protect the borrower or cover loan repayments in the event the borrower is unable to make the repayments on their Loan. Borrowers should discuss personal insurance options such as Loan Protection Insurance with your broker to Cover any unforeseen circumstance (i.e., ALI Mortgage Insurance Protection).
What happens when the loan is refinanced?
LMI is lender specific, which means if you refinance your home loan to a different lender and you borrow more than 80% of the value of the property, you will have to pay LMI again.
Do your research, as this may outweigh the benefits of refinancing to a lower interest rate.
If the equity in your home has increased or you have paid down the principal on your loan, you may not need to borrow more than 80% with the new lender and therefore avoid paying LMI again.
Case Study:
Nathan and Amy have found a home they want to buy for $500,000. Typically, they would need a 20% deposit ($100,000) to secure a loan from their lender. By taking out Lenders Mortgage Insurance, their lender is prepared to If the LMI is paid upfront, if capitalised to the loan the lender will provide a loan up to 95% of the value of the home.
This means that that Nathan and Amy can secure a home loan sooner with a 5% deposit ($25,000 plus costs) and stop paying rent. Their lender passes on the Lenders Mortgage Insurance premium cost to Nathan and Amy by way of a fee called a ‘premium’.
The Lenders Mortgage Insurance protect the lender if Nathan and Amy default on their loan repayments- it does not protect Nathan and Amy.
What is ALI Loan Protection
A lot can happen over your lifetime
It’s safe to assume that our standard of living, health and family are important to us. However, there are certain events, such as serious illness or injury, which can put your home, lifestyle and future plans at risk.
A life insurance policy just for homebuyers
LS Finance Broking services extend beyond just helping you find the right loan. It’s also about helping you understand the risks of borrowing. We have a solution which may help you manage those risks and could provide you and your loved one’s financial assistance when you need it the most. The payout could help with things like living expenses, medical costs, and your mortgage repayments.
To learn more about this potential insurance solution click here. Or contact our brokers today.
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Disclaimer statement: this page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
