Lender’s Mortgage Insurance (LMI)

Lenders usually require borrowers to pay Lenders Mortgage Insurance (LMI) if they are borrowing more than 80% of the property’s value. LMI is a type of insurance that protects the lender, in case the borrower has some delinquency in making loan repayments and the eventual sale of the property can’t cover the entire loan value.

As an incentive to the borrower, lenders generally can lend more if there’s an LMI policy since it reduces the lenders’ risk. Generally more buyers prefer to pay LMI than waiting for the additional years required to save a bigger deposit. LMI is usually arranged by your lender and can often be added to your total loan amount to lessen the upfront costs. It can also be deducted from your total loan funds when it is advanced.

On the other hand, if you don’t feel like paying for LMI, there are ways you can avoid paying it. One is having a larger deposit, or the other one is to use a guarantor if your deposit doesn’t reach 20% of the property value.

Which is better—pay LMI or wait until you have enough savings for a deposit? The answer depends on your personal circumstances and goals. To know more about your options, feel free to contact your 3Carrots mortgage broker.