What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance (LMI) is one of the ways to help you achieve the dream of homeownership sooner without having the 20% deposit which is typically required by most banks and financial institutions.
With LMI, lenders may allow you to borrow a higher proportion of the purchase price, allowing you to purchase a property with a smaller deposit than would otherwise be required. It may also enable you to borrow at an interest rate that is comparable to a borrower who has a larger deposit.
Who is insured?
The lender is the insured party, not you, the borrower, or any guarantor. Lenders Mortgage Insurance protects the lender against a loss should the borrower no longer be able to afford their loan repayments and the Guarantor (if any) is unable to meet the liability.
Lenders Mortgage Insurance should not be mistaken for Mortgage Protection Insurance, which covers your mortgage in the event of death, sickness, unemployment and disability.
Why does my loan require Lenders Mortgage Insurance and how can it benefit me?
By reducing the lender’s risk at the outset, taking out Lenders Mortgage Insurance allows you to purchase your dream home with as little as 5% of the purchase price. This can open up many possibilities for you as a new homebuyer – better location, larger house, ability to do renovations – simply put, LMI brings you that much closer to achieving your homeownership dreams, years earlier than you ever thought possible.
What costs are involved?
Unlike traditional insurance products, there is a one-off premium payable for LMI. This premium is charged by the LMI provider to the lender, who typically passes this cost on to the borrower. The premium is payable when the loan funds are advanced and provides cover for the full term of the loan. The cost of Lenders Mortgage Insurance varies depending on the amount of the loan, the level of your equity in the security property, and the level of risk associated with the particular loan product.
Some lenders will allow you to add the cost of the LMI premium on to your loan meaning you will not have to pay this amount upfront. Your loan repayments will instead increase marginally to cover the cost of the LMI premium.
Is the premium refundable?
A partial refund of the LMI premium may be applicable if the loan is repaid within the first two years. Sometimes a partial refund is not payable because a lower LMI premium may have been charged to you upfront. This varies by lender, so please speak to your lender to find out what arrangements they have in place.
How is LMI arranged?
Your lender or broker will prepare all the necessary information and documentation and will advise you whether or not your loan requires LMI, the cost of the premium and any additional information that may be required.
What can I do if I’m having difficulty in meeting my mortgage repayments?
A lot of people face unforseen challenges or change of circumstances in their life. This can often mean you may experience difficulties in meeting your mortgage repayments.
If this happens to you, the most important thing to do is to contact your lender immediately. There are a number of ways your lender can assist you if you are experiencing hardship and Genworth also has programs in place to assist you if you find yourself in financial hardship.
For more information
The LMI Toolkit on the Genworth website contains tools and resources that will assist you to better understand LMI and the mortgage market. Among these resources are case studies, fact sheets, and videos that further explain LMI, the process of buying a home, and information on what you should do if you find yourself in financial hardship.