Lender's Mortgage Insurance - LMI
Saturday 25 May 19
What is it?
Lender’s Mortgage Insurance, or LMI, involves a special type of insurance company providing protection to the lender. If the borrower fails to make the repayments and the lender ends up foreclosing on the loan, if the sale proceeds are not enough to cover the loan, the mortgage insurance company makes up the difference.
It doesn’t provide protection for you as the borrower, instead it would involve a specialised team chasing you for whatever they could get! But, what it does do, is to enable you to buy the home that otherwise would be out of reach.
How much does Lender’s Mortgage Insurance cost?
If you are just above the 80% LVR and the property is not too expensive, then it might just be a few thousand dollars. When you get up around a 95% LVR it’s common to be tens of thousands of dollars. In each case you need to weigh up whether or not it is worth it.
In rising real estate markets, it tends to be an absolute bargain, as the property could be going up my multiples of the expense during the period you would otherwise have to wait to get enough of a deposit.
In level real estate markets, it could still mean for some borrowers that they get their home many years earlier, then if they waited until they had enough of a deposit to purchase without it.
In falling real estate markets, it could be beneficial to wait, be patient and pay less LMI and get the property cheaper, ending up with a smaller loan.
How do you apply for Lenders Mortgage Insurance?
Simply apply for the loan. It’s included as part of the process when it is needed.
Do I have a choice of mortgage insurance companies?
Generally, no. The lender has an arrangement with one or both of the two major mortgage insurance companies in Australia, Genworth and/or QBE, or they provide the insurance through part of their own organisation.