This Fact Sheet has been introduced to help you understand Lenders Mortgage Insurance:
- Who is covered under LMI.
- When is mortgage insurance required.
- Who pays for it.
- When a customer is eligible for a refund of LMI.
What is it and what does it cover?
Lenders Mortgage Insurance insures a financial lender for any shortfall in the event that you default on your loan and if the proceeds from the property sale are not enough to pay off the loan in full.
You (and/or any guarantors) are still liable to pay the shortfall (for example, to the mortgage insurer if the financial lender claims on Lenders Mortgage Insurance). It’s important to understand that LMI is obtained by and insures the financial lender, not you.
Lenders Mortgage Insurance should not be confused with mortgage protection insurance, which is an insurance option to cover your mortgage and/or your mortgage repayments in the event of death, disability, unemployment or reduced income. You can find out more about mortgage insurance by speaking to us.
When is Mortgage Insurance required?
If a deposit is less than 20% then insurance is usually required. There may be other circumstances where Lenders Mortgage Insurance is also required. As LMI reduces the financial lender’s risk as a lender when providing a home loan, you may be able to apply for a home loan and get into your home sooner, with a lower deposit.
What is the cost of LMI and who pays for it?
The cost of Lenders Mortgage Insurance is calculated as a percentage of the loan amount. The percentage applied will vary depending on a number of factors. Please speak to us if you would like to understand this process in more detail.
The cost of Lenders Mortgage Insurance premium is passed on to you.
How is it paid?
Lenders Mortgage Insurance is taken out by and lender where your loan requires it to meet their credit underwriting standards. The LMI premium is usually a one-off charge and can be included either in your upfront costs and paid immediately, or added to your loan repayments so that it’s spread out over the term of the loan. You can find out about these options by speaking to your broker.
Am I entitled to a refund if I repay my loan early?
Yes, you are eligible for a partial refund of the premium paid, if you meet all of the following conditions:
- All loans covered under the LMI policy are repaid in full and any associated mortgage
- within 12 months of the settlement date, a refund of 40% of the premium will apply, or
- from 12 months to less than or equal to 24 months, a refund of 20% of the premium will apply.
- The loans covered have not been in arrears throughout the loan term.
- The calculated refund is greater than the minimum threshold (any stamp duty is not refundable).
Finally, if you’d like to understand more about Lenders Mortgage Insurance and how we could help you with your finance for mortgage, debt consolidation, refinancing to free up cashflow, business, equipment, car or asset finance – contact us today.
Or speak to our Home Loan and business finance expert on 0409 200 059
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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.