What is LMI?
As the name suggests, LMI is an insurance that protects the lender if you default on your loan. It often applies when you have a smaller deposit to reduce the risk of loss for the lender.
It’s important to note, while the borrower pays the LMI cost, it does not protect you or remove your obligation to repay your loan if you default.
What does LMI mean for borrowers?
LMI can open up the property market to those who haven’t yet saved the traditional 20% deposit.
If you don’t agree to pay for LMI, a lender may be reluctant to provide a loan to you.
What to consider
LMI is an additional cost to consider when you’re buying your home along with other expenses like stamp duty and insurance.
Many lenders will let you tack LMI onto your loan – known as ‘capitalising’ the cost. This helps reduce the initial amount you need to pay upfront.
Your lender will let you know the LMI premium upfront because they will arrange it themselves – it’s not something you need to shop around for or organise yourself. The cost is typically based on the value of the property and the size of the deposit you have available, your LVR.