| Lenders Mortgage Insurance (LMI) protects the lender | | | | this reason, many lenders allow borrowers to add the |
| in the event that a mortgage borrower defaults on | | | | premium to the balance of their mortgage and pay it |
| their loan. The insurance policy is only required for | | | | off over time. |
| home loans that have a balance exceeding 80% of | | | | The lender will usually have a commercial arrangement |
| the value of the property at application. | | | | with one insurance company with whom they put all |
| Traditionally, home loans were only issued up to a | | | | their LMI cases to. This means that you will not be able |
| maximum of 80% loan to value. This meant that the | | | | to shop around for an insurance company if you want |
| borrower needed to put down a deposit of at least | | | | to apply for a home loan with a particular lender. The |
| 20% if they wanted to buy a home with a mortgage. | | | | lender will also apply for the LMI for you - there is no |
| This was done because the lower loan to value ratio | | | | need for you to apply separately. |
| resulted in a lower risk mortgage for the lender. In the | | | | LMI only insures the lender. It is not a replacement |
| case of default, the lender could repossess and sell | | | | product for building or contents insurance, or for |
| the property at a discount to recover their funds. | | | | personal insurances such as life assurance and income |
| However as time has gone by, some lenders have | | | | protection. The borrower receives no benefit from the |
| allowed people to borrow more than 80% of a | | | | LMI, except for the fact they will not need to pay for a |
| property's value. To offset the risk, lenders take out an | | | | large deposit to buy a home. Borrowers should |
| insurance policy against the balance of the loan above | | | | therefore seek to protect themselves from financial |
| 80% of the value of the property. That way, if the loan | | | | distress by way of a personal insurance policy. |
| goes into default, the lender can recover some of the | | | | Being approved for LMI is not the same as being |
| balance of the mortgage from the insurance company. | | | | approved for a home loan. If you are buying a home |
| Although the LMI protects the lender, it is paid for by | | | | you will still need to meet the lender's normal |
| the borrower by way of a lump sum payment. While | | | | requirements in order to be approved for the |
| many types of insurance policies allow for regular | | | | mortgage. |
| monthly payments, the LMI premium must be paid for | | | | If you are looking to take out a high loan to value |
| when the mortgage is taken out. Because LMI is | | | | mortgage on your property you should speak to a |
| usually take out by people who were unable to save | | | | mortgage broker. They will be able to select a lender |
| for a deposit on their home, it is unlikely they will be | | | | which will offer the most beneficial home loan and the |
| able to pay an expensive premium as a lump sum. For | | | | cheapest LMI to suit your particular circumstances. |