Useful Tips

Lenders Mortgage Insurance (LMI)

Every lender has their own terms and conditions, and this is intended only as a general guide to understanding this topic. Contact us to discuss your individual circumstances.

Definition
LMI is a one-off, upfront insurance premium that is generally payable when you borrow more than 80% of the property value. It does not protect you as a borrower. It protects the lender in the event that you default on the loan, and they have a shortfall in funds after selling the property. The mortgage insurer will then pay the lender this shortfall, but then the insurer will seek these funds directly from you.

LMI can be capitalised (added onto) the loan amount, so you don’t have to save up to pay the premium.
LMI should not be confused with Mortgage Protection Insurance, which covers the borrower in the event of sickness, unemployment, disability or death.

Benefits
For the lender
LMI minimises the risk of loss on low deposit housing loans. It gives lenders the confidence to approve more mortgages and enhances their ability to lend to a broader range of customers. This helps lenders maintain their competitiveness in the home loan market.
For the borrower (you)
Essentially this gives people, with less deposit, the opportunity to enter the property market. LMI also allows property investors to have higher lending ratios, giving them the opportunity to leverage off the associated benefits of negative gearing.

Disadvantages
The cost of the premium.

Things to consider
What is covered by LMI?
Loss of principal and unpaid interest
All reasonable recovery costs such as legal fees, marketing costs, repairs, maintenance and outstanding rates.
What is not covered by LMI?
The borrowers (or guarantor where applicable)
Break costs on fixed rate loans
Physical damages to the security
Fees and charges not directly related to costs incurred by the lender in recovery of the debt.

You’ll find a short video on Mortgage Insurance here : http://www.youtube.com/watch?v=kPWB88euck0&feature=youtu.be