What is lenders mortgage insurance and do I need it?

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Lenders mortgage insurance (LMI) is an insurance policy that protects the lender in the case where the borrower defaults on the mortgage loan. However, it is often the borrower that is required to pay this cost.
The borrower may be required to pay for LMI where the LVR on their mortgage loan is greater than 80% (i.e. the borrower has a deposit of less than 20% when applying for the mortgage loan).
The LMI premium is a one-off payment which is paid at settlement. We offer the ability to add the payment of the LMI premium to your mortgage loan to reduce expenses at the time of settlement.

Who pays this insurance premium?

Each lender has a different way of insuring themselves against the risk of loss.  Some lenders require every loan to have Lender’s Mortgage Insurance and other’s only require higher risk loans to be insured.
When it’s know whether or not the lender requires an insurance to be in place for a loan, the level of risk is an indicator of who needs to pay it.
The LVR is the indicator that all lenders use in order to determine this.
(see what’s an lvr)

When do you need mortgage insurance?

If the LVR of the home loan is calculated at above 80%, then the lender will require the premium to be paid. And it will need to be paid by you, the borrower.  Some lenders will allow you to include this premium in your loan amount – effectively you will be borrowing more money from the lender and paying off this amount over the life of your loan.
For other lenders, loans below 80% LVR will be paid for by the lender.  This differs between lenders of course and some lenders will still have the loan insured, but simply pay the premium for you.  Other lenders may elect to not even have the insurance for these loans as they are perceived to be a lower risk of them suffering a loss.
Two of the LMI providers, Genworth and QBE both have great reads on their website about LMI and you can read more here with Genworth and here with QBE.

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