What is lenders mortgage insurance?
Lenders mortgage insurance (or LMI), is an insurance policy taken out by lenders that covers them in cases where borrowers are unable to pay back the money the amount. This insurance allows lenders to offer loans to a wider amount of customers who would otherwise be deemed too much of a risk for the lender.
Do I need to apply for LMI?
If your loan is more than 80% of the property value, you may incur LMI. Your Peasy broker will be able to help you with setting up the correct structure to try and minimise or avoid LMI in your loan, and will work with the bank to apply for LMI on your behalf. Whilst there is no protection for the customer in having LMI, it is essential for a borrower to have LMI if required by the bank to proceed with a loan.
How much will it cost?
Mortgage insurance is charged as a percentage of the loan amount. It will generally increase, as the loan amount and LVR (loan to value ratio) increases. For example, a $270,000 mortgage against a $300,000 property (90% LVR) may incur mortgage insurance of 1.5% – 2%, and a $475,000 mortgage against a $500,000 property might incur mortgage insurance of around 3.5% – 4%. It can be borrowed on top of the loan in some cases, and included in the repayments. We will help you with calculating mortgage insurance and provide you with the repayment information if required.
If you have any further questions about LMI or for that matter, anything else then don’t hesitate to get in touch.