Lenders Mortgage insurance
Lenders Mortgage Insurance (LMI) is a term you'll likely see when you have a low deposit which essentially a bank fee that is added to the loan as the bank is providing more funding and holding more risk. Below explains what is LMI further and how to avoid paying it.
What is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance (LMI) is a fee charged by home loan lenders in order to protect the lender (not borrower) of risk where lender is providing vast majority of the loan. It is typically required by a lender if the borrower is considered a risk, usually if they are borrowing more than 80% of the property purchase price.
When is Lenders Mortgage Insurance (LMI) paid?
Generally LMI can be paid as;
- Once off at the time of settlement.
- Or added into the loan.
LMI is generally non refundable.
How is Lenders Mortgage Insurance (LMI) calculated?
How much LMI you’ll be required to pay will depend on the size of your loan and the size of your deposit. LMI is calculated as a percentage of the amount borrowed. This means that the fee the borrower pays increases as the Loan to Value Ratio (LVR) and loan amount increases.
This fee varies slightly from lender to lender and depends on a number of variables including if the property is a new purchase or investment, if the property will be owner occupied, and where the property is located since stamp duty is payable on LMI.
The cost of LMI can be affected by multiple factors. These include:
The size of your loan
Your deposit amount (i.e those with a 5% deposit will pay more than those with a 15% deposit)
If the property is for investment or personal use
Your employment stability - may take into consideration your employment history and status (full-time, part-time, casual)
Your lender’s insurer