What is Lenders Mortgage Insurance?

What is Lenders Mortgage Insurance?

Lender’s Mortgage Insurance (LMI) is a once off premium charged by the lender if you borrow more than 80% of the property value when taking out a home loan, unfortunately LMI is non-transferable between banks so is applicable when moving from one bank to another and looking to lend over 80% of the property’s value.

Covers Loss

LMI is an insurance to cover any loss that would be incurred to the lender in the event of default on a mortgage and sale proceeds from the enforced sale not covering the outstanding mortgage. Please keep in mind the insurance does not cover you, the borrower.

Opportunity Cost

Consider LMI an opportunity cost, especially when it can be quiet challenging for most to come up with a home loan deposit of 20%. The cost of LMI varies depending on many factors, it can cost from a few hundred to many thousands of dollars. In most cases the lender will allow this cost to be added to the loan.

Save Big or Pay LMI

In any case you might be thinking is it better to save for a larger deposit or pay the LMI and buy now? This is a great question and there are many variables at play here. For example how long will the 20% take to save? Will property prices rise in value between now and when you save the 20% deposit? Do you have any family that would be able to ‘gift’ funds to avoid LMI? Do you have family that would assist with a property guarantee to avoid LMI?

The key here is to do your research, there are so many different options and many ways you can avoid LMI. It’s important to be diligent, especially with a major purchase like buying a property. LMI can be waived by lenders when certain criteria is met, so talk to me today and find out more!

Contact us today – Nathan Vecchio – 0410 000 689

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