Lenders Mortgage Insurance or LMI is an insurance that covers the lender (the bank) if the borrower (you) does not make the home loan or property investment loan payments and the lender (the bank) needs to repossess the property but the sale of the property does not cover the borrower’s (your) outstanding debt.
Generally, for people borrowing greater than 80% of the property value, (greater than 80% loan to value ratio) Lenders Mortgage Insurance (LMI) is required by the bank or other lenders. However, in some exceptional circumstances like doctor home loans, Lenders Mortgage Insurance can be waived up to 90% LVR no LMI.
The lender usually passes on the cost of the Lenders Mortgage Insurance (LMI) to the borrower (you).
No, Lenders Mortgage Insurers have specific eligibility criteria for borrowers. These criteria are in addition to the lenders criteria, and may be stricter.
Lenders Mortgage Insurance – LMI can be several thousand dollars. The cost depends on how much money you borrow and the size of your deposit. The greater the loan percentage in comparison to the property value (when above 80%) and the greater the total loan amount the more expensive the Lenders Mortgage Insurance will be.
No, many lenders will allow you to borrow the cost of the Lenders Mortgage Insurance – LMI.
No, not all lenders require Lenders Mortgage Insurance (LMI) on loans greater than 80% Loan to Value Ratio (LVR). Some lenders will self-insure but you may be charged a higher interest rate. The types of borrowers eligible for these types of loans are also more restricted (i.e. people who have been previously bankrupt may not be eligible).
Many people who do not have a large enough home loan deposit (their deposit is less than 80% of the property value) use Lenders Mortgage Insurance. This can allow them to purchase the property earlier than they otherwise would have and transition them from renting to owning their own home. It is particularly popular when house prices are rising quickly. For property investors, Lenders Mortgage Insurance allows borrowers to have higher borrowing ratios, giving them the opportunity to maximize negative gearing and tax deductibility benefits.
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