MyRate Education Centre
Lenders Mortgage Insurance (LMI)
Lenders mortgage insurance acts to protect the lender, not the borrower. Generally, if you are looking to borrow over a certain percentage of the property price you will have to pay this. It’s all related back to funding – if the loan is insured, it is easier for the lender to source the funds.
It provides the lender with two types of protection:
Payment cover: in case the borrower defaults on their repayment.
- Covers the shortfall of the borrower. E.g. If the amount due was $100 and the borrower only pays $50.
- The lender is covered by insurance for the shortfall; however the borrower will still have to pay for the amount owing.
Mortgagee in possession
LMI also provides protection for the lender if the borrower is forced to relinquish their property. If the mortgagee sells this property for a shortfall them LMI will cover the difference. However, the borrower will still also have to repay this shortfall back to the lender.
Tips:
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The more risky the loan/borrower, the higher the LMI costs – e.g. sub prime mortgages are more expensive than prime mortgages.
Prime borrowers can borrow up to 80% of the property price without mortgage insurance.
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Click here if you wish to receive an estimate of LMI for your situation.
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