What is LMI (Lender's Mortgage Insurance)

"VIRTUALLY next door"

Australian prudential regulations do not allow lender's exposure to exceed 80% LVR (loan valuation Ratio) on full docs or 60% LVR on low docs unless they insure against that risk.  The insurance is arranged by the lender and charged to the borrower.  The borrower is not insured this is not to be confused with loan protection insurance.  LMI is not optional.

LMI is mainly academic in relation to off-shore borrowers as only a very few lenders have access to the insurance and this means that for most lenders 80% LVR is the ceiling no matter how strong your case is. However we do have a few lenders who will lend to Aussie citizens and this allows those off-shore borrowers to borrow 95% LVR.

The fee for Lenders' Mortgage Insurance is paid by the borrower as a once only fee at loan settlement and varies depending on the amount of money being borrowed and the size of the borrower's deposit. This is a graduated scale increasing on both loan amount and on the percentage borrowed.

In Australia  two insurers dominate the market Genworth and  QBE.   The insurers place various conditions on applications and among these are length of employment, income tests, and deposit conditions.   It is important to remember that when you are borrowing over 80% LVR the insurer often has the final say.

Most lenders now allow you to 'capitalise' the LMI - this can be a great benefit and substantial saving.