Lenders Mortgage Insurance

What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance (LMI) protects your lender against a loss should you as a borrower default on you home loan. If the security property is required to be sold as a result of the default, the net proceeds of the sale may not always cover the full balance outstanding on the loan. Should this be the case, your lender is entitled to make an insurance claim to the insurer for the reimborsement of any shortfall.

Who is insured?
It is actually your lender, and not you the borrower or any guarantor, who is covered by LMI. Where a cliam for loss is paid to a lender, the insurer may seek recovery from the borrower, or any guarantor, for any shortfall.
LMI should not be mistaken for Mortgage Protection Insurance, which covers the loan for a borrower in the event of death, sickness, unemployment or idsability.

Why does my loan require LMI? How does it benefit me?
Many banks and financial institutions require you to contribute a portion of the purchase price towards your property (a deposit). With LMI, lenders can advance a higher portion of the purchase price of the property; allowing you to purchase a property with a smaller deposit than would otherwise be required.
The benefit of your lender obtaining LMI means you can obtain a home loan with less than the 20% deposit that is usually required, thus enabling you to purchase a home sooner.
LMI also alows property investors to have higher borrowing ratios, giving you the opportunity to leverage off the associated benefits or negative gearing (residential investment property).

What costs are involved?
Unlike traditional insurance products, there is a once-only premium payable for LMI. This is payable when the loan funds are advanced and provides cover for the full term of the loan. The cost of LMI varies depending on the amount of the loan, the level of your equity in the security property and the level of risk associated with the particular loan product.