The lender's mortgage insurance protects the lender against financial loss if you don't pay your mortgage loan and the property is subsequently repossessed and sold. The LMI is an insurance policy that some mortgage loan borrowers must pay. The purpose of the LMI is to protect the lender from financial losses if the borrower is unable to pay their mortgage loan payments. The lender's mortgage insurance (LMI) is issued to Westpac Banking Corporation ABN 33 007 457 141 (Westpac) and to Westpac insurers (it is not insurance that you take out).
Since the LMI can cost thousands of dollars, this can represent a significant additional cost to your loan. Your mortgage broker will help you calculate all the costs involved so that you have an accurate idea of how much money you will have to spend on buying your property. If you decide to capitalize your LMI on your mortgage loan, you will also have to consider the additional interest that will be charged on the amount of insurance during the life of the loan. Online lender Homestar recently launched a “no LMI” mortgage loan that eliminates the cost for eligible customers.
They will assess your loan-to-value ratio (LVR) (the ratio of money you want to borrow compared to the value of the property you want to buy) and determine if you will need to obtain an LMI and your ability to repay your mortgage loan. The cost of the LMI may vary depending on the percentage of the value of the property borrowed and the amount of the loan. According to Mortgage Choice's annual Future First homebuyer survey, 72% of prospective first-time homeowners aim to buy within two years of their decision to enter the market. The lender's mortgage insurance premium is usually a one-time charge and can be included in the initial costs and paid immediately, or added to the loan repayments to be spread over the term of the loan.
Your agent will be able to suggest different lenders and home loans to help you meet the relevant requirements and get your loan approved more quickly. Generally, a lender will require you to pay the LMI if your mortgage loan deposit is less than 20% of the total value of your property, that is, if your loan-to-value ratio (LVR) is greater than 80%. Mortgage insurance from lenders insures Westpac against any deficit if you don't pay your loan and if the proceeds from the sale of the property are not enough to pay the loan in full.
