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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.

  1. You can pay it upfront on settlement of the loan
  2. 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 

 

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