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A quick guide to lenders mortgage insurance

A quick guide to lenders mortgage insurance

Published Fri 3 May 2024 • 6 min read

Even if you don’t have that magic 20% deposit, there could still be ways to get into a new home. Lenders mortgage insurance (LMI) is one of them. While it adds to the expense of buying a home, LMI could help you get through the door sooner.

What is LMI?

As the name suggests, LMI is an insurance that protects the lender if you default on your loan. It often applies when you have a smaller deposit to reduce the risk of loss for the lender.

It’s important to note, while the borrower pays the LMI cost, it does not protect you or remove your obligation to repay your loan if you default.

What does LMI mean for borrowers?

LMI can open up the property market to those who haven’t yet saved the traditional 20% deposit.

If you don’t agree to pay for LMI, a lender may be reluctant to provide a loan to you.

What to consider

LMI is an additional cost to consider when you’re buying your home along with other expenses like stamp duty and insurance.

Many lenders will let you tack LMI onto your loan – known as ‘capitalising’ the cost. This helps reduce the initial amount you need to pay upfront.

Your lender will let you know the LMI premium upfront because they will arrange it themselves – it’s not something you need to shop around for or organise yourself. The cost is typically based on the value of the property and the size of the deposit you have available, your LVR.

Find out how much you could borrow. In only two minutes you could have an obligation-free indication of your borrowing power.
Start your application online or call us on 1800 100 258, 8am-8pm Mon-Fri and 9am-5pm Sat (AEST/AEDT).

What happens if you default on your home loan with LMI?

If you’re unable to repay your home loan, your property may need to be sold to recover the outstanding loan balance. If the property’s sale does not cover the balance, the LMI issuer pays the lender this amount. The LMI issuer will then seek to recover this amount from you and any guarantors.

Remember, LMI protects the lender not the borrower.

Avoiding LMI

You could avoid having to pay for LMI by having:

Refinancing and LMI

If you refinance with a different lender, that lender is not part of your original LMI cover. So, if LMI is required, you’ll need to pay for it again.

What is mortgage protection insurance?

Mortgage protection insurance (MPI) is cover that can help protect the borrower in certain situations, including:

  • involuntary job loss
  • inability to work due to illness or injury
  • death

MPI benefits can range from covering loan repayments to a full payout.

Unlike LMI, which protects and is arranged by the lender, MPI is for the borrower and is arranged and paid for by them.

It’s important to seek independent advice when considering MPI.

Find out how much you could borrow. In only two minutes you could have an obligation-free indication of your borrowing power.
Start your application online or call us on 1800 100 258, 8am-8pm Mon-Fri and 9am-5pm Sat (AEST/AEDT).