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What Is Lender's Mortgage Insurance?

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What Is Lenders Mortgage Insurance?

Lenders mortgage insurance (LMI) is one way to help you achieve your dream of homeownership sooner without having the typical 20% deposit which is normally required by most banks and financial institutions (lenders).

What is LMI?

With LMI, lenders may provide finance at a higher proportion of the purchase price.

LMI is a condition of home loan borrowing where your lender may require you to make a one-off payment to protect them, if for any reason, you fail to make your home loan repayments.

Who does LMI protect?

LMI should not be confused with mortgage protection insurance – it’s a common misbelief that LMI covers you the borrower, however, it actually protects the lender in the case of a loan default.

What are the benefits of LMI?

It can be a tough decision whether to buy now with a small deposit and pay LMI, or wait and save for a larger deposit and avoid LMI. However, we know that the housing market can be unpredictable, and if house prices rise, you could end up paying a lot more than the LMI cost.

Remember, everyone’s individual situation is different and determining whether you will be better off buying now or renting will depend on a variety of factors. Check out Genworth’s Buy vs Rent calculator.

How much does KMI cost?

How much does it cost?

Unlike most traditional insurance products, LMI has a one-off premium payable.

This premium is charged by the LMI provider to the lender, who will pass this cost on to you. Lenders will often allow you to add the cost to your loan, so good news is you won’t need to have the funds available upfront.

The total cost will vary depending on several factors, such as:

  • The value of the loan
  • The size of the deposit you’ve saved
  • Whether the property is to live in or investment
  • The level of risk involved, e.g. whether you’re a casual or full-time employee

Genworth’s LMI premium calculator can give you a better indication of the total cost payable.

Are there any alternatives to LMI?

If you’re not able to save a large enough deposit and you want to avoid paying LMI, a guarantor could be the right option for you.

You could be eligible for a Gateway Family Pledge, you just need a family member to use the available equity in their home to provide additional security to help cover any borrowing shortfalls.

At Gateway, we lend up to 105% of the new property value to cover additional expenses such as stamp duty and legal fees. Gateway Family Pledge can help you save a significant amount of money, helping your family have a good start to home buying.

How do I apply for LMI?

How do I apply for LMI?

Your lender will advise you if your loan requires LMI and they will help you prepare all necessary documents. To qualify, your lender will check that you are able to meet regular mortgage repayments and meet relevant policy.

To learn more about how to make your next home loan work for you, give us a call on 1300 302 474 (8am - 6pm AEST, Mon - Fri).

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