Lenders Mortgage Insurance

Lenders Mortgage Insurance - LMI

Lenders mortgage insurance, 'reduced equity fee' or an 'equalisation fee' are one-off payment by the borrower to the lender (or lender's insurer) to 'insure' a home loan. LMI insures the lender for any short fall on a home loan, so if you were sold up because of defaults, it covers the difference between what your property is sold for and the amount still owing. It is important that borrowers are aware that lenders mortgage insurance does not provide any protection to them. Lender's Mortgage Insurance insures the lender, not the borrower.

typical lmi use situations

If you have a No Deposit / 100% home loan or any kind of full verification loan with less than 20% deposit, you will almost certainly pay lender's mortgage insurance. Most Low Document Loans and Non Conforming Loans require LMI when you have a deposit of less than 40% (60% LMI). 

your lender usually chooses your lmi provider

Mortgage insurance is arranged by the lender, not the borrower, although the borrower pays for it. In Australia, the  Lender's Mortgage Insurance market is changing, but there are still predominately two LMI providers - Gemworth Financial and PMI.  Most banks & lenders have their preferred mortgage insurance provider and you have no choice in who you deal with. 

With more LMI providers entering the market, some lenders like RAMS Home Loans and FirstMac are offering borrowers choice. You would typically choose one over the other to suit your borrowing situation. It is very important to discuss this decision with your mortgage broker.

Note: if a mortgage insurance provider declines to issue the insurance for a loan, the lender will not proceed with the application.

Lender Mortgage Insurance Rates

On fully verified 100% loans, dependent on the lender and the risk, mortgage insurance can cost up to 3% of the amount you are borrowing. Up to 95% loans (or 5% deposit), the amount would typically be up to 1.2% - 1.5% of the loan amount. As you get closer to 80% home loans (or 20% deposit), the cost usually discounts substantially. If you have 20% or more deposit and all other factors are in line, mortgage insurance is generally not charged.

Need Help on LMI?

Understanding LMI (lender's mortgage insurance) can be confusing. To get help, call us on 13 XINC (+61 2 90181471 direct) or fill out the form below and we will return your call within two business hours. 

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Rate & Risk Usually go together

There are a number of loans available up to 95% LVR without LMI. Check the interest rate. You will generally find they have a higher interest rate attached to them. Dependent upon your circumstances, this may be more suitable.

lmi stamp duty fees

Borrowers need to be aware that lender's mortgage insurance attracts a stamp duty tax which varies among states and territories and is dependent on the location of the security property. Where a loan is 'bundled' with two or more properties located in different states, the premium is apportioned to the relevant state on a security value basis. The stamp duty is then be calculated on the premium apportioned to each state at the rate applicable. At June 2007, the LMI stamp duty rates across Australia were:

Ask your mortgage broker about 'reduced equity fees' and 'equalisation fees' as a potentially cheaper alternative to LMI, available through lenders such as ING Bank.