Question 1

What is Lenders Mortgage Insurance?

Accepted Answer

LMI is an insurance policy taken out by a lender but paid by the home loan borrower to protect the lender should the borrower be unable to make their payments and the property is repossessed. LMI covers the lender's risk in lending to borrowers with less than the standard 20% deposit.

Question 2

Do all home loans require Lenders Mortgage Insurance?

Accepted Answer

No. Loans taken out with a 20+% deposit do not require LMI. LMI applies to loans with less than 20%, that is with LVR of 80+%.

Question 3

Will LMI cover my payments if I am unable to make mortgage payments?

Accepted Answer

No. LMI is insurance for the lender, not the borrower. If a borrower requires income insurance to ensure they can cover their payments, they would need to arrange a suitable policy.

Question 4

Why do lenders require LMI on low deposit home loans?

Accepted Answer

Lenders require LMI on low deposit home loans as these loans present a higher risk than a standard 20% deposit loan.

Question 5

When is LMI due to be paid?

Accepted Answer

LMI may be paid by the borrower as a lump sum upfront cost when the loan is arranged. The lender passes the funds onto their insurer to pay for the policy. Alternatively, the LMI cost may be added to the loan and paid off with the monthly payments. Interest would accrue.

Question 6

Does the cost of LMI get included in my mortgage payments?

Accepted Answer

Where a lender capitalises the LMI â€“ adds it to the loan, it can be added into the monthly mortgage payments.

Question 7

If I have the Government Guarantee scheme, do I need to pay LMI?

Accepted Answer

The 5% Government Guarantee scheme does not require borrowers to pay LMI as the Government is guaranteeing the deposit.

Question 8

Will I need to pay Lenders Mortgage Insurance when I refinance?

Accepted Answer

When refinancing a home loan, if the LVR is above 80% then LMI will be required on the refinanced loan.

Question 9

If I save the balance of the deposit in the initial mortgage term, will the lender refund the LMI?

Accepted Answer

No. LMI is non-transferrable and non-refundable.

Question 10

What options are available to avoid having to pay LMI?

Accepted Answer

To avoid paying LMI, buyers with less than 20% deposit can consider arranging a guarantor, applying for the Government Guarantee scheme, or waiting until they have saved the necessary deposit to buy.

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