What is the purpose of lenders mortgage insurance?
Nigel Abery (PhD), Mortgage Broker at Oak Laurel.
Lenders mortgage insurance or LMI is insurance that covers the lender (the bank) if the borrower (you) does not make the home loan or property investment loan payments and the lender (the bank) needs to repossess the property but the sale of the property does not cover the borrower’s (your) outstanding debt.
When is Lenders Mortgage Insurance used?
Generally, for people borrowing greater than 80% of the property value, ( greater than 80% loan to value ratio) Lenders Mortgage Insurance (LMI) is required by the bank or other lender. However, in some exceptional circumstances like (doctor home loans) lenders mortgage insurance can be waived up to 90% lvr no LMI.
Who pays for Lenders Mortgage Insurance?
The lender usually passes on the cost of the lenders mortgage insurance (LMI) to the borrower (you).
Which companies provide Lenders Mortgage Insurance?
Is everyone eligible for Lenders Mortgage Insurance?
No, Lenders Mortgage Insurers have specific eligibility criteria for borrowers. These criteria are in addition to the lenders criteria and may be stricter.
How much does Lenders Mortgage Insurance cost?
Lenders Mortgage Insurance – LMI can be several thousand dollars. The cost depends on how much money you borrow and the size of your deposit. The greater the loan percentage in comparison to the property value (when above 80%) and the greater the total loan amount the more expensive the Lenders Mortgage Insurance will be.
Do I need to pay Lenders Mortgage Insurance upfront?
No, many lenders will allow you to borrow the cost of the lenders mortgage insurance – LMI.
Is Lenders mortgage insurance required on all loans with loan to value rations (LVR) above 80%?
No, not all lenders require Lenders Mortgage Insurance (LMI) on loans greater than 80% Loan to Value Ration (LVR). Some lenders will self-insure but you may be charged a higher interest rate. The types of borrowers eligible for these types of loans is also more restricted (I.e. people who have been previous bankrupt may not be eligible).
How can Lenders Mortgage Insurance benefit me?
Many people who do not have a large enough home loan deposit (their deposit is less than 80% of the property value) use lenders mortgage insurance. This can allow them to purchase the property earlier than they otherwise would have and transition them from renting to owning their own home. It is particularly popular when house prices are rising quickly. For property investors, lenders mortgage insurance allows borrowers to have higher borrowing ratios, giving them the opportunity to maximise negative gearing and tax deductibility benefits.
Want to purchase your property earlier? Contact a mortgage broker to see how.