What is Lenders Mortgage Insurance (LMI)?

July 13, 2020

LMI is an insurance policy protecting the lender (i.e the bank) from financial loss if the borrower (you) cannot afford to make their monthly home loan repayments. If the borrower defaults on their loan and the sale of the property doesn’t make up the total value of the remaining mortgage, the lender will enact their LMI policy to make up the loss due to these circumstances.

LMI is designed to protect the lender, by reducing their risk of lending money to you if you have a
deposit for your property under 20%. LMI allows financial institutions to lend larger amounts and
approve more home loan applications, if the customer does not have the 20% deposit required.

How is LMI calculated?

Lenders Mortgage Insurance (LMI) is a fee charged by home loan lenders. It is typically required by a
lender if the borrower is borrowing more than 80% of the property purchase price. LMI is calculated
as a percentage of the amount borrowed. The fee the borrower pays increases as the LVR and loan
amount increases.

How does it affect me? Do I pay this upfront?

If you have under 20% deposit for your home at the time you purchase this; the lender will typically
ensure you pay it upfront or add this to your home loan, this is a non-refundable payment. This means
if you switch your loan to another lender, you won’t be able to transfer your LMI to another lender.

Can I avoid paying it?

Yes, if you have a deposit greater than 20% of the total amount paid for the property, or by taking
advantage of the government guarantee scheme.

Want expert advice?

If you are looking for a Home Loan or want to talk to an expert advisor to ensure you do not pay more

than you have to, during your search for your first or next property, contact a member of the Ramsey
team today on 1300 001 215.

Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. Information in this article is correct as of the date of publication and is subject to change.