Lenders Mortgage Insurance!

Have you heard the term Lenders Mortgage Insurance before?

Lenders Mortgage Insurance, or LMI, is a charge that is payable by the client in the event you borrow more than 80% of the market value of your property.

You may be wondering, why do I have to pay LMI if I borrow more than 80% of the market value of my property? Well, anytime you need to borrow more than 80% of the properties value, the lenders deems your transaction as a higher risk to them and as such LMI is applicable to assist the lender reduce or mitigate their risk.

So how does it work?

Well let’s say you need to borrow more than 80% of the market value of your property and LMI is applicable. In this instance you as the client will need to pay LMI, but the LMI policy will actually protect the bank in the event you default of your loan or cannot afford to pay it back.

Most lenders will only allow you to borrow up to 95% of the market value of the security as a maximum, but there are some lenders and some certain examples where you can lend up to 97% of the market value of the property.

Some professions such as Doctor’s and Vet’s for example, have special provisions with some lenders and are able to lend up to 90% with no LMI.

At the end of the day, I always say that LMI is a waste of your money and if possible it’s best to avoid it. Why do I say this? Well because you as the client pay it, but it does not benefit you in any way. It only benefits the lender. Of course some people are not in position to be able to avoid LMI, and this is fine as long as you are fully aware of the LMI cost upfront and have explored all options to try and avoid it.

If you would like to know more about LMI, or lending concepts in general, please contact FIMA Finance.