25 Sep 2017

Lenders Mortgage Insurance Explained

What is lenders mortgage insurance?

Lenders Mortgage Insurance (LMI) is a one-time insurance payment that protects your mortgage lender if you are unable to make payments. LMI is typically paid when the loan to value ratio is up to or more than 80%.

What affects the cost of lenders mortgage insurance?

There are several factors that affect the cost of LMI, these include the following:

  • Your Loan Amount: The more money you borrow, the more of a risk you are to the mortgage lender if you are unable to make payments. The higher the loan, the more it will cost to insure against it.
  • Your Deposit: Your deposit amount will not only affect the interest rate offered to you by the lender, it will also affect your LMI amount. The less deposit you have, the more LMI you can expect to pay.
  • Investment or Live In: The amount of LMI you pay will also depend on whether you are going to live in the property or if you are purchasing it for investment purposes.
  • Employment status: If you have been in full-time employment for several years, you are seen as less of a risk than someone who is self employed, or doesn’t have a stable career.

How much does lenders insurance cost?

As outlined above, there are several factors that affect the cost of lenders mortgage insurance. How much you will pay will depend on these factors. The only way to find out exactly how much you should expect to pay is to ask your lender.

How to Avoid Paying LMI

If you are a strategic planner, you can definitely avoid paying mortgage insurance. Here are some of the most common ways you can get around it:

  • Pay a large deposit: If your deposit is more than 20% you can avoid paying LMI.
  • A guarantor: A person with good credit history and preferably someone who owns their own home can be a guarantor for all or part of your loan. If you are unable to make payments, the responsibility will fall on the guarantor.
  • Your Employment: Professions such as doctors, lawyers, accountants and engineers are given more weight by some lenders and they will waive LMI based on this.