What is Lenders Mortgage Insurance?
For your clients, Lenders Mortgage Insurance (LMI) is a way to help your client become a homeowner sooner without the 20% deposit that is generally required by the lender.
Usually, LMI will be needed if someone wants to borrow over 80% of a property’s value as they will be seen as ‘high risk’.
How does LMI work?
With LMI, lenders may allow the borrower to borrow a higher amount of the purchase price to buy a property with a smaller deposit than would otherwise be needed. It is important for your clients to note that LMI protects the lender if they are unable to pay the loan - it does not protect your clients and is not to be confused with Loan Protection Insurance.
- How is LMI calculated?
- Different factors are taken into account when calculating the LMI premium:
- Property purchase price
- Deposit amount
- Loan to value ratio (LVR)
- State the property resides in
- If the client is self employed
- If the property is for investment or owner occupied purposes
- Any applicable state-based incentives
What impact does LMI have on your clients?
As LMI is a one-off fee that can be rolled into the home loan or can be paid upfront, your clients have the option of paying less overall upfront or more in the long run. As deposits can already be quite difficult saving for, a deposit of less than 20%, made possible by LMI, coupled with choosing not to pay LMI upfront may allow them to purchase their home sooner than they expected.
A mortgage broker can help guide your clients through LMI, how much they will need to pay and how it affects them.