What you need to know about Lenders Mortgage Insurance

What is it?

Lenders Mortgage Insurance (LMI) protects the lender in the case that the borrower defaults on meeting loan repayments and cannot recover the full amount of the loan.

Can I avoid paying LMI?

LMI is generally only charged when you have a deposit which is less than 20% of the property’s value. If you do not have the required savings, having someone act as a guarantor for your loan may also be a solution.

Find out more: How an equity guarantor can help with your deposit

Why should I pay it?

While LMI is a cost that can be avoided, there are situations where it is beneficial to the borrower. Firstly, it allows you to borrow up to 95% of the property value. If you cannot meet the required deposit, this may be the only way you can purchase. Another common reason people pay the insurance is to move into their home sooner, avoiding the time it takes to save up a deposit. It is also wise to pay the insurance if you believe the property’s price will increase by more than the cost of LMI in the time it would take to build up sufficient savings.

How much does it cost?

LMI is a one-off premium, payable at settlement, which is usually capitalised to the loan. The cost depends on both the loan size and the lender.

Is it better to wait and save the deposit or pay Lenders Mortgage Insurance?

This is a personal question that is relative to you goals, plans and finances. A Finance Detective broker can work through the calculations and discuss your options so you can make an informed decision. Contact us on (08) 9289 7777 or info@nullfinancedetective.com.au to set up an appointment.