An introduction to Lenders Mortgage Insurance

21 April, 2015

Lenders Mortgage Insurance can be the key that lets first home buyers unlock the door to their own home.

Thinking of buying a property? You may need to consider Lenders Mortgage Insurance (LMI) if you have a purchase deposit of less than 20% of the property’s value.

Lenders Mortgage Insurance works quite differently from most other types of insurances. While it is the home buyer who pays the premium, it is the lender that is protected if the borrower cannot keep up the loan repayments.

The role of Lenders Mortgage Insurance

While none of us like to pay more in loan costs than necessary, Lenders Mortgage Insurance plays a valuable role in the property market. Without Lenders Mortgage Insurance many lenders may be reluctant to provide a loan to borrowers with a small deposit.

For home buyers, Lenders Mortgage Insurance could help overcome the difficulty of saving a deposit when property values are climbing rapidly.

What to consider

If you need to pay for Lenders Mortgage Insurance, bear in mind this is an additional cost to consider when you are buying your home. Your lender will let you know the premium for Lenders Mortgage Insurance – 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.

However, to make the cost more manageable, many lenders will let you tack lenders mortgage insurance onto your loan - known as ‘capitalising’ the cost. This will mean paying interest on the premium, but paying a little extra off your loan each month could help to reduce the long term expense.