What is Lender’s Mortgage Insurance?
Understanding the lingo of buying and financing a property can help make the process less stressful, and LMI is just one of the many acronyms that you’ll become intimately familiar with during the course of buying your first home.
Matt explains “Going back 50 years ago, if you didn’t have a 20 per cent deposit the banks wouldn’t lend you the money to purchase a home. However, the banks saw the worth in the fact that you’re able to make the repayments on the home loan, so the decision was made to introduce Lender’s Mortgage Insurance (LMI).
“Let’s say that you purchase your home for $400,000 and the lender gives you a loan for $380,000. 12 months later, your home is only worth $360,000, you can’t afford to make the repayments and your home has to be sold. The lender is able to recoup the $20,000 loss from the mortgage insurer. So even though you pay the insurance, the insurance protects the lender,” Matt explained.
There are ways to protect yourself if you can’t make your repayments, and a good mortgage broker should talk to you about your options as part of the process.