Lenders Mortgage Insurance
Lender's Mortgage Insurance, as the name states, protects the Lender not you as the borrower. Lender's Mortgage Insurance (LMI) is a once off fee that normally applies to loans where the customer is borrowing more than 80% of the purchase price. LMI is scaled depending on the percentage you need to borrow (between 80 - 100%) and the amount of the loan (ie, $650,000). LMI can start from $800 and range up to nearly 4% of the loan amount. You have two options to pay this fee.
- You can pay it upfront on settlement of the loan
- Some lenders allow you to capitalise the cost of your LMI, meaning that they will add this figure to your loan amount. For example, if you are borrowing $650,000, your LMI may work out to be $7000. You would actually increase your loan amount to now borrow $657,000 ($650,000 + $7,000)
It's important to note that LMI is not refundable if you sell your property. Furthermore, if you decide to refinance and your LVR remains above 80%, the new lender will also require you to pay LMI again. Therefore, where possible, a 20% deposit is recommended as this removes the need for LMI.
Source: Mortgage Advice Bureau