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What is LMI?
What is LMI?
Helping you understand Lenders Mortgage Insurance
Achieving the dream of home ownership is one of the most exciting times in your life. However, it also comes with a big challenge – the time it takes to save a substantial deposit that lenders often require (typically 20% of the home’s purchase price). If you do not have a substantial deposit saved, your lender may be prepared to provide you a home loan with a smaller deposit (as little as 5%), by taking out Lenders Mortgage Insurance (LMI).
Lenders Mortgage Insurance (LMI) is an insurance policy that your lender takes out to protect itself against the risk that you (the borrower) default on your loan repayments and your lender is unable to recover the full outstanding loan amount.
Lenders Mortgage Insurance is arranged by your lender and the premium is a one-off cost your lender pays to us (the insurer) upon settlement of your property purchase. This cost is passed on to you (the borrower) by your lender, as a fee.
Lenders Mortgage Insurance protects your lender, not you, the borrower
It is important to note that Lenders Mortgage Insurance does not protect you (the borrower) or any guarantor. It should not be confused with Mortgage Protection Insurance which is a separate insurance policy that protects you (the borrower) if you are unable to make repayments on your loan.
How much does it cost?
Your lender will tell you how much it will cost after you apply for your loan. The cost will depend on various factors including the size of your deposit and the type of loan you take out. Our LMI premium estimator is an online calculator that can provide you with an estimate of the premium payable.
You may be able to add the cost of this fee to your loan amount, which means you will pay interest on it over the term of your loan. Otherwise you will need to pay it up front, before your lender provides your home loan.
Is the premium refundable?
The Lenders Mortgage Insurance fee that your lender charges you may be partially refundable if your loan is terminated within the first two years. Alternatively, your lender may not provide a refund because it has arranged to receive a larger up-front discount on its Lenders Mortgage Insurance premium (instead of the right to a refund). In this case the full amount of this discount is passed on to you. This means that if you were to refinance your home loan with another lender or increase your loan amount, you may be required to pay a Lenders Mortgage Insurance fee again. You should check with your lender to find out if they have a refund policy and if it applies to you.