What is lenders mortgage insurance?
Lenders’ Mortgage Insurance (LMI) is insurance that a lender takes out to protect itself against the risk of not recovering the full loan balance, if the borrower is unable to meet your home loans repayments and you default on the loan. In the unfortunate situation that this occurs and the property is sold, any shortfall between the outstanding loan balance and the proceeds from the sale of the property will be paid to the Lender by the LMI provider. It is important to understand that LMI protects the lender, not you or any guarantor.
Do I only pay it once?
In most circumstances yes that is correct, however if you refinance to another bank and are still over the 80% threshold you would pay it again, it’s a one-off fee per bank. Also be careful if you make names changes to your title that can cause a new LMI fee to be charged even if you stay with the same bank.
Can I avoid the fee?
The only sure-fire way of avoiding LMI is to have a 20% deposit, however if you are a member of certain professional organisations certain banks offer LMI waivers below 90%, make sure you check if your profession is on the list.
Is it a flat fee?
No, it is not, the higher your loan to value ratio and loan amount the higher the mortgage insurance fee. It increases substantially at certain levels so always check the impact of contributing a little bit extra in to your deposit because it can be thousands.
How is it paid?
Usually it is added onto your home loan and you pay it down as you pay your home loan over the term of the loan.
Is it refundable?
In some cases, LMI may be partially refundable if your loan is repaid early. This will depend on the arrangements between your lender and their LMI provider.
Are LMI premiums the same from lender to lender?
No, and there can be large differences too. Different lenders use different LMI providers, have different loading policies and some even have a delegated underwriting authority. All of which can yield different LMI premium amounts for the same set of circumstances.
For all you need to know about LMI and if you qualify for a waiver call us now on 1300 GOBEYOND.