What is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance is a premium payment made by a borrower to the lenders insurer to insure a home loan. If a borrower defaults on their repayments and the bank is forced to sell the property, LMI would cover the lender if there is a shortfall in the amount owing on the loan and the amount the property is sold for.
It is important to understand that LMI insures the lender, not the borrower. LMI can be a great option to help first home buyers enter the market if the 20% deposit is a barrier to purchasing a home. LMI is applied to home loans if the value being borrowed is greater than 80% of the property value. The premium for LMI can be paid as a lump sum at the beginning of the loan or it can be capitalised on the loan and repaid over the loan term.