Lenders Mortgage Insurance (LMI)
Without a 20% deposit on a Home Loan, Lenders Mortgage Insurance (LMI) is required. So what exactly is LMI?
Lenders Mortgage Insurance
Without a 20% deposit on a Home Loan, Lenders Mortgage Insurance (LMI) will generally be required. So what exactly is LMI?
Lenders Mortgage Insurance Explained
Achieving the dream of home ownership can be one of the most exciting times in your life. It can also seem unattainable primarily due to the length of time it can take to save the substantial home deposit that is usually required.
With the support of Lenders' Mortgage Insurance (LMI), we may be able to accept smaller deposit and provide a home loan to you that might not otherwise be available.
LMI protects us, as the lender not you, the borrower
LMI is insurance that we take out to protect our self against the risk of not recovering the full loan balance, if you, the borrower are unable to meet your home loan repayments and you default on the loan. In these unfortunate circumstances, if the property is sold and there is a shortfall between the outstanding loan balance and the proceeds from the sale of the property, the LMI provider will pay this shortfall to us. It is important to understand that LMI protects us, as the Lender, not you the borrower or any guarantor.
LMI is a one-off cost paid at completion of your property purchase
The LMI premium is a once only cost payable by us as the lender when your property purchase is completed. It insures us against financial loss for the full term of your loan. Usually the cost of the LMI premium will be passed on to you by way of an LMI fee.
The Cost of LMI
The cost of LMI will depend on how much you borrow and how much of the purchase price you pay from your own funds. The more you contribute the lower the cost of LMI. Additional discounts or loadings may apply, so speak to either us as your banker, or your broker or financial adviser for a quote. You can choose to pay the LMI fee from your own funds or you may be able to add (capitalise) this amount into your loan. We will be able to provide details of what options are available to you. If you were to refinance your home loan to another lender, an LMI fee might be payable again. For more information on fees and charges speak to us, or your broker or financial advisor.
LMI might be partially refundable
LMI is generally not refundable. However, in some limited situations you may be entitled to a partial refund of the LMI fee, depending on the arrangements between us, as your lender and our LMI provider. We suggest you speak to us, or your broker or financial adviser for more information.
LMI is not the same as Mortgage Protection Insurance
LMI should not be confused with Mortgage Protection Insurance (MPD. MPI may make some of your mortgage repayments or pay a lump sum should certain specified events occur such as unemployment, sickness, disability or death. Please contact us or your broker or financial adviser for more information concerning these products.
Contact us as soon as you think you might have problems meeting your loan repayments
If you are suffering financial hardship or experiencing problems and you cannot make your loan repayments on time you should immediately contact us to discuss your situation.
You are still responsible if the proceeds from the sale of your property are not sufficient to repay the loan in full
If you default and your property needs to be sold, sometimes the money received from the sale of your home will not be sufficient to repay the outstanding loan. In this situation the LMI provider will pay us, the lender an amount in accordance with the LMI policy (normally the difference between the outstanding loan balance and proceeds from the sale of the property). Once an LMI claim has been paid, the outstanding debt owed by you is typically passed from us to the LMI provider. The LMI provider may then seek to recover the remaining debt from you the borrower and any guarantors.
John and Sally borrowed $600,000 to buy a home valued at $650,000. As their deposit was less than traditionally required, LMI was required and the LMI fee was capitalised into the Loan. (included in the $600,000 borrowed). Due to unforeseen circumstances, John and Sally are not able to meet their loan repayments, defaulting on the loan and accumulating $15,000 in unpaid interest. The end result being that the property is sold. In this scenario the property sells for, say $550,000. The outstanding loan balance is $625,000 (which includes the amount borrowed, unpaid interest and other fees associated with selling the property) leaving a shortfall of $75,000. The LMI provider pays Us, the lender the shortfall. The LMI provider then has the right to seek repayment of the $75,000 from John and Sally.