12/09/2024
Lender's Mortgage Insurance (LMI) is a type of insurance that protects the lender in case a borrower defaults on their mortgage.
It’s often required when a borrower’s down payment is less than 20% of the property's value, which is seen as a higher risk by lenders.
Here’s a breakdown of how it works:
Purpose: LMI reduces the risk for lenders if a borrower fails to repay their loan. It does not protect the borrower, but rather the lender.
Cost: The cost of LMI is usually borne by the borrower and can be a one-time upfront payment or added to the loan amount. The cost varies depending on the size of the loan and the amount of the down payment.
When it's needed: It typically applies when the borrower has a small deposit or equity, usually less than 20% of the property’s value. It helps borrowers who may not have a large deposit to still get a mortgage.
Benefits to Borrowers: Although it might seem like an extra cost, LMI can enable borrowers to secure a mortgage sooner and with a smaller deposit, allowing them to buy a home when they might not otherwise be able to.
Remember, LMI is generally not refundable if you repay the loan early, so it’s a cost to consider carefully.
