Lenders’ mortgage insurance (LMI) – everything you need to know
Affordability remains a challenge for many Australians. For those who can’t save a 20% deposit, lenders’ mortgage insurance (LMI) can help make home ownership possible sooner by providing security for the lender.
Find the answers to:
What is LMI?
LMI is an insurance policy that protects the lender if a borrower isn’t able to make their loan repayments, and the property that secures the loan is sold with insufficient funds to pay off the home loan in full.
Through providing lenders with additional protection, it could make home ownership more accessible for potential home buyers.
How can I buy a home with less than 20% deposit?
While lenders usually require a 20% deposit for a home loan, with LMI, borrowers can apply for a home loan without putting down the full 20%.
Chris Butel, General Manager of LMI at QBE, says that getting a foot on the property ladder doesn’t mean saving indefinitely – instead, you can leverage the tools you have at your disposal.
“LMI can enable people to buy a home sooner, even if they haven’t been able to save a 20% deposit. Essentially, the LMI provider offers security for the lender, so they feel more comfortable about providing a home loan to a borrower.”
Although borrowers will still need to demonstrate the ability to repay the loan and meet the lender’s usual loan qualification criteria. Butel notes that LMI can help borrowers get on the housing ladder sooner.
Who pays for LMI?
LMI is taken out by the lender, who then passes on the cost to the borrower, usually by adding the LMI premium to the total home loan amount.
How much is LMI?
The price of LMI varies, based on several factors of the loan, such as loan amount, the percentage of the property value you are borrowing and loan purpose. Ask your lender for LMI price estimates and visit their websites to access LMI calculators.
What’s the purpose of LMI?
LMI reduces the lender’s risk, so they can issue home loans with a smaller deposit.
Traditionally, lenders ask for a 20% deposit on a home loan, meaning they’re lending a maximum of 80% of the property’s value. That way, if a borrower can’t repay their mortgage, the lender has mitigated the risk of loss if the property needs to be sold.
Does LMI cover mortgage repayments?
No. LMI is not the same as Mortgage Protection Insurance.
When you find your dream home, don’t forget home insurance. These handy calculators can help you work out how much you need.
