What’s Lenders Mortgage Insurance (LMI), why do I need it? How much does it cost? These are some of the questions people who are buying their property for the first time or people who aren’t familiar with the concept frequently ask. Do you have similar questions? If yes, then today’s article will teach you everything you need to know about the lenders mortgage insurance.
What’s Lenders Mortgage Insurance (LMI)?
The first thing you should know is that the LMI is an insurance policy that protects the lender instead of the borrower in the event where the borrower defaults on their home loan and there’s a shortfall. If the amount you recovered from selling your home is not enough to cover your debt, the outstanding amount you owe to your lender is termed shortfall.
The LMI helps the borrower cover the shortfall by paying the outstanding amount to the lender. Don’t breathe easy yet because your LMI provider may want to recover the shortfall amount from you.
When is Lenders Mortgage Insurance necessary?
You may need LMI when your home loan deposit is lesser than 20% of the property’s lender-assessed value. Your lender-assessed value is simply your lender’s valuation of the property you want to own.
When your initial deposit is lower than 20% of the lender-assessed value, it simply means that you have an 80% Loan to Value Ratio (LTV) and when your LVR is more than 80%, it puts the lender at higher risk that’s why LMI is needed in such scenarios.
Not all lenders follow the same rules in determining when LMI is needed that’s why when applying for a home loan, the lender should be able to tell you when LMI is applicable and what the approximate cost of the LMI should be.
How much does Lenders Mortgage Insurance cost?
The value of the lender’s mortgage insurance varies between people because the value is usually dependent on factors like where you borrowed, the size of your deposit, and your lender. If all the factors mentioned have high percentages, it means that you’ll pay more to LMI.
Can Lenders Mortgage Insurance be refunded or transferred to another financial institution?
LMI cannot be transferred to any financial institution. LMI usually don’t offer refunds except the repay your home loan within two years of the drawdown or settlement date only then will you be entitled to a partial refund.
If you made the entire payment on or after the drawdown or settlement date (25th November 2019), you’ll be refunded with:
If you repay your home loan within 12 months of the date of drawdown or settlement, you’ll be refunded 40% of your LMI fee.
If you repay your home loan between 12 months and 24 months of the date of drawdown or settlement, you’ll be refunded 20% of your LMI fee.
Note: If your drawdown or settlement date was set before the 25th of November 2019 or if you refuse or are unable to complete your house loan within two years of your drawdown or settlement date, you’ll not be refunded with any of your LMI fees.
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