Lenders Mortgage Insurance (LMI) – everything you need to know
- With rising rents1 and property prices2, housing affordability in Australia is a struggle for many people
- Lenders Mortgage Insurance (LMI) provides security for the lender, where borrowers are unable to contribute a 20% deposit
- If you’re saving for a home, speak to your lender about potential home loans
It’s no secret that rents are rising steadily across the country3. Not to mention, the average Australian house price is now $912,700 (June 2023), compared to $891,000 just six months before (December 2022)4.
While lenders usually require a 20% deposit for a home loan, with LMI, borrowers can apply for a home loan without putting down the full 20% deposit.
Pat Priest, General Manager of LMI at QBE, says that getting a foot on the property ladder doesn't mean saving indefinitely – instead, you can leverage the tools you have at your disposal.
“LMI can enable people to buy a home sooner, even if they haven't been able to save a 20% deposit. Essentially, the LMI provider offers security for the lender, so they feel more comfortable about providing a home loan to a borrower.”
Although borrowers will still need to demonstrate the ability to repay the loan and meet the lender’s usual loan qualification criteria. Priest notes that LMI can help borrowers get on the housing ladder sooner.
So, here’s the rundown on LMI.
What is LMI?
LMI is an insurance policy that protects the lender if a borrower isn't able to make their loan repayments, or the security property is sold with insufficient funds to pay off the home loan in full.
Through providing lenders with additional protection, it could make home ownership more accessible for potential home buyers.
What’s the purpose of LMI?
LMI reduces the lender’s risk, so they can issue home loans with a smaller deposit.
Traditionally, lenders ask for a 20% deposit on a home loan, meaning they’re lending a maximum of 80% of the property’s value. That way, if a borrower can’t repay their mortgage, the lender has mitigated the risk of loss if the property needs to be sold.
How does LMI protect lenders?
LMI protects lenders if a borrower can’t keep up with their home loan repayments.
Let’s say a borrower defaulted on their loan and the lender needed to sell the property to repay the loan. If the property is sold for less than the outstanding loan, the lender would claim any shortfall from the LMI policy.
Who pays for LMI?
LMI is taken out by the lender, who then passes on the cost to the borrower, usually by adding the LMI premium to the total home loan amount.
How much is LMI?
LMI pricing varies, based on several factors of the loan, such as loan amount and loan purpose. Ask your lender for LMI pricing estimates.
Does LMI cover mortgage repayments?
No. LMI is not the same as Mortgage Protection Insurance.
Learn more about Lenders Mortgage Insurance.
Finally, when you find your dream home, don’t forget home insurance. These handy calculators can help you work out how much you need.
1 https://www.abs.gov.au/statistics/detailed-methodology-information/information-papers/new-insights-rental-market
2 https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/total-value-dwellings/latest-release
3 https://www.abs.gov.au/statistics/detailed-methodology-information/information-papers/new-insights-rental-market
4 https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/total-value-dwellings/latest-release
