What is LMI or Lenders Mortgage Insurance?
LMI or Lenders Mortgage Insurance is a one off, non refundable payment made by borrower to lender, to protect lender in an event of default (borrower unable to make mortgage repayments).
In Australia, LMI is usually required when the borrower borrowing more than 80 % of the property price.
In other words, if the home loan deposit is less than 20% of property value, then you have to pay the LMI.
Lenders Mortgage Insurance is meant to protect the lender not the borrower and should not be confused with Mortgage Protection Insurance.
How does Lenders Mortgage Insurance (LMI) works
Suppose you are planning to buy a home valued $600,000, you will at least need a home loan deposit of $120,000 to avoid Lenders Mortgage Insurance (LMI).
20% of $600,000 = $120,000
Lenders Mortgage Insurance FAQs
The amount Lender Mortgage Insurance or LMI you need to pay depends upon amount of money you borrow, LVR (Loan Value Ratio) and it also depends upon the lender.
It really depends upon you situation, some first home buyers prefers to wait and save 20% deposit and then you there first home while other home buyers are happy to pay Lenders Mortgage Insurance.
Unlike Stamp Duty, you have to pay LMI even if you are a First Homer Buyer. You either need at least 20% deposit or you will have to pay Lenders Mortgage Insurance whether you are a buying you first home or buying an investment property.
LMI can be either paid upfront fee or can be capitalised. Capitalisation of Lenders Mortgage Insurance means adding LMI fee to the total loan amount, and paying it off in regular instalments with your home loan.