Lenders Mortgage Insurance (LMI) is an insurance policy that protects the lender against potential loss if a borrower is unable to meet their loan repayments. If the property must be sold and the sale proceeds do not cover the outstanding loan balance (plus claimable costs), LMI may cover the lender for the shortfall.
LMI insures the lender only. The borrower (and any guarantor) is not insured under LMI.
If a claim is paid, the insurer may seek recovery from the borrower or guarantor for any shortfall amount.
Most lenders require a deposit based on a percentage of the property’s purchase price. Where the deposit is smaller, LMI may be required.
In many cases, LMI can help borrowers by enabling the lender to approve a loan with a higher loan-to-value ratio, which may allow you to:
Purchase a property sooner
Buy with a smaller deposit than would otherwise be required
Access higher borrowing ratios for residential investment properties (which may support certain investment strategies, such as leveraging negative gearing where applicable)
Unlike many traditional insurance products, LMI is generally a once-only premium that is payable when the loan funds are advanced. It provides the lender with cover for the full term of the loan.
The cost of LMI varies depending on factors such as:
The loan amount
Your level of equity in the security property
The level of risk associated with the loan product
In some cases, the LMI premium may be added to the loan, which can result in slightly higher repayments.
If the loan is later restructured or increased, an additional LMI cost may apply at that time.
Unlike many traditional insurance products, LMI is generally a once-only premium that is payable when the loan funds are advanced. It provides the lender with cover for the full term of the loan.
The cost of LMI varies depending on factors such as:
The loan amount
Your level of equity in the security property
The level of risk associated with the loan product
In some cases, the LMI premium may be added to the loan, which can result in slightly higher repayments.
If the loan is later restructured or increased, an additional LMI cost may apply at that time.
The security property must meet the insurer’s requirements. Commonly acceptable security types include:
Freestanding dwellings
Semi-detached and terrace houses
Home units, townhouses and villas
Vacant land
Each property is assessed on its individual characteristics and merits to determine suitability for LMI purposes.
The security property must meet the insurer’s requirements. Commonly acceptable security types include:
Freestanding dwellings
Semi-detached and terrace houses
Home units, townhouses and villas
Vacant land
Each property is assessed on its individual characteristics and merits to determine suitability for LMI purposes.
GST is payable and is included in the quoted amount. Stamp duty may also apply, depending on the State or Territory where the security property is located. Where applicable, this amount is included in the cost.
A partial refund of the LMI premium may be available if the loan is repaid early, subject to conditions and eligibility criteria. This can include requirements such as the policy issue date, the loan being repaid in full within a specified period, the policy being fully terminated, and the policy not being subject to a claim at the time of repayment.
LMI should not be confused with Mortgage Protection Insurance. Mortgage Protection Insurance may cover the borrower for certain events such as death, sickness, unemployment, or disability—whereas LMI protects the lender.
Contact AdvisorCorp for all your home loan–related requirements — our team is ready to assist and guide you through the process.