Mortgage insurance for lenders (LMI) is a single, non-refundable, non-transferable premium added to your mortgage loan. It is calculated based on the amount of your deposit and the amount you borrow. The more you contribute to the purchase price of your property, the lower the cost. Capitalize the LMI premium on your loan, add the full premium to the total amount of the loan, and it's paid off with ongoing repayments on your mortgage loan.
Your mortgage broker will be able to identify not only how likely the LMI is to be approved, but also how long the application may take. So, it's important to remember that the lender's mortgage insurance doesn't protect you, but the lender. Consumers buying a home should consider other forms of insurance to protect their assets, in particular home and content insurance. The LMI is the insurance premium on your loan that allows you to borrow up to, in most cases, up to 95% of the value of the property.
While most lenders tend to trust lenders' mortgage insurance if the LVR is greater than 80%, some lenders have created their own alternative (and often in-house) risk process. Qualifying for the LMI means passing an insurance company's qualification guidelines, as well as the lender's criteria for applying for a mortgage loan. Your mortgage broker will help you calculate all the costs involved so that you have an accurate idea of how much money you will have to spend on buying your property. Because it's actually the mortgage insurance company that assumes the risk of your mortgage loan, it may have more stringent criteria for granting approval.
Mortgage protection insurance is designed to help you pay your mortgage if you become seriously ill or disabled and unable to work. There are many different types of homebuilding insurance policies available to fit a wide range of life circumstances, and Understand Insurance offers several calculators to help you determine if you have enough coverage. The LMI insurer can pay your lender an amount according to the LMI policy and then ask you, the borrower, to return this amount directly. When applying for a mortgage loan with a deposit less than 20% of the purchase price of the property, lenders will generally require you to take out mortgage insurance (LMI) from the lender.
The Insurance Council of Australia manages Find an Insurer, which can help homeowners identify insurers that offer the products they are looking for. Make sure you don't confuse LMI with mortgage protection insurance; this is a completely different insurance product. By using the LMI, lenders can transfer this risk to a mortgage insurer, allowing it to offer the same loan amount but with a lower deposit.
