Mortgage Insurance – Protection for Your Investment
Lender’s Mortgage Insurance, or LMI, is insurance that is required to be taken out by a home buyer to protect the lender against any loss, should the property being financed be subjected to foreclosure and the lender makes a loss when selling the property to cover the remaining principle loan amount. LMI does not protect the borrower, as many people believe, but is purely an insurance to protect the lender. Plus, even with lender’s mortgage insurance in place, if the resale of the home fails to raise enough money to satisfy all debts, the home buyer can still be sued for the difference.
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- Interest Rate of 6.47%
- Comparison Rate of 6.36%
- Application Fee of $0
- Maximum LVR With LMI: 95%
- Minimum Borrowing: $150,000
- Maximum Borrowing: $1,000,000
Featured Home Loans
| Home Loan | Details | Interest Rate (p.a.) | Comp Rate^ (p.a.) | App Fee / Ongoing Fee | Max LVR | Min & Max Borrowing | |
|---|---|---|---|---|---|---|---|
 State Custodians Mortgage Company Standard Variable Offset Loan |
A low interest rate with a bonus rate drop of 0.20% after 5 years. | 6.02% | 6.23% | $0 / $345 | 95% | $150,000 / $1,000,000 |
 
|
 Illawarra Home Loans Bank Beater Home Loan |
A low 6.68% p.a. variable rate, beaten down even further by 0.05% p.a. after 5 years. | 6.07% | 6.35% | $0 / $345 | 90% | $250,000 / $1,000,000 |
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 Resi Home Loans – Smart Option Home Loan |
The Smart Option Home Loan offers you a super low rate of 6.49% p.a. fixed for 1 year. Plus no ongoing and no application fees. | 6.49% | 6.99% | $0 / $0 | 95% | $50,000 / $20,000,000 |
|
 Loans.com.au – Dream Loan Express – Variable Home Loan (80.01% -95%) |
A home loan offer with a $0 application fee and one of the lowest available home loan interest rates. | 6.20% | 6.22% | $0 / $0 | 80.01% – 95% | $50,000 / $750,000 |
|
 NAB Tailored Home Loan – Variable Rate |
Discount of up to 0.70% p.a. off the standard variable home loan rate with the NAB Choice Package. | 6.99% | 7.12% | $600 / $10 | 95% | $20,000 / $10,000,000 |
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Loan protection insurance is available for a home buyer to take out to protect themselves, and this insurance will cover loan repayments, or pay out the mortgaged amount, if the borrower is unable to meet the repayment amounts due to job loss, illness, injury or death.
LMI Helps Home Buyers Who Have Small Deposits
Lender’s mortgage insurance became available in the Australian lending market in 1965, but before that time it was very difficult for people wanting to buy their own home to do so unless they had a 20 percent deposit to put down.
Banks were reluctant to extend mortgage loans to anyone with less than a 20 percent deposit in case the person defaulted and they could not recoup the amount that had been loaned; the larger deposit not only meant a lower loan to value ratio, but also showed that the borrower was financially responsible enough to stick to a savings plan to achieve their goal.
Lender’s mortgage insurance has meant that home loan providers can feel confident in loaning greater amounts, and in turn they require a smaller deposit, often just five or 10 per cent of the purchase price. As a result, many more people have been able to purchase their own homes sooner, especially first home buyers, rather than having to wait and save up a high deposit amount.
Capitalisation makes it Easier to Pay LMI
Lender’s mortgage insurance is generally required from borrowers who want to take out a home loan with anything less than a 20 percent deposit, or a 40 percent deposit in the case of a low documentation loan. LMI is arranged by your lender during your loan approval process, so you don’t need to worry about completing any additional paperwork.
Many lenders will allow you pay the insurance using capitalisation, and if you take up this option the lender will lend you the amount of the lender’s mortgage insurance on your loan, and add this additional borrowing to your original loan amount. In this way you will still receive the amount of loan that you asked for, you don’t need to save a bigger deposit and you don’t need to fund yet another home loan fee at application.
LMI Arranged Through Your Mortgage Provider
Although your mortgage provider will arrange any necessary lender’s mortgage insurance on your behalf, the insurer will still have to approve you before accepting the risk. Your lender will also arrange the underwriting part of the home loan approval process. Mortgage insurers are considered to be a very conservative sector of the industry and if you don’t have a significant deposit, they will want to see that you have a stable employment history, a perfect credit history and a sound savings record.
Many of the larger mortgage loan establishments, especially the big four banks, have a close relationship with their lender’s mortgage insurance provider and as a result can approve the necessary cover on behalf of their insurer. These providers are known as delegated underwriting authorities or DUAs. This relationship helps to ensure you will be promptly approved for the lender’s mortgage insurance if you meet the loan eligibility requirements.
How is Your LMI Calculated?
Lender’s mortgage insurance is a one off payment required to be made at the time of application, and the amount that you will have to pay is calculated using an LMI Rate Chart or Premium Table. This is simply a chart listing a percentage of the loan amount based on the size of the loan, and the percentage of the property value, known as the loan to value ratio or LVR. For example if you were to borrow an amount of $255,000 secured by a property valued at $300,000 you would be borrowing 85 percent of the property value. This is regarded as being an 85 percent LVR. In this case, because both the loan size and LVR are low, your lender’s mortgage insurance premium will also be minimal.
However if you were borrowing $950,000 secured by a property valued at $1,000,000 you would be borrowing 95 percent of the property value, and have a 95 percent LVR. Where both the LVR and the loan size are significant, your lender’s mortgage insurance premium will be quite high too. Different lender’s mortgage insurance providers can have vastly different premiums, so it is difficult to know what LMI would cost based on a loan amount and LVR, as the amount will differ between underwriters.
To help you work out how much lender’s mortgage insurance you will have to pay on top of your other home buying costs, contact Home Loan Finder for an individual calculation.
Related posts:
- Why Do I Need Lenders Mortgage Insurance When Refinancing
- Lenders Mortgage Insurance & First Home Owners
- Tips to Avoid Lenders Mortgage Insurance
- Is Lenders Mortgage Insurance Beneficial?
- Is Lenders Mortgage Insurance Beneficial?
- Property Investment Tips
- Guide to Mortgage Insurance
- Lenders Mortgage Insurance
- No Deposit Investment Loan
- Westpac Fixed Rate Investment Property Loan Interest Only in Advance
Top Home Loans
| Home Loan | Details | Interest Rate (p.a.) | Comp Rate^ (p.a.) | App Fee / Ongoing Fee | Max LVR | Min & Max Borrowing | |
|---|---|---|---|---|---|---|---|
Loans.com.au - Dream Catcher | A home loan offer with a $0 application fee and one of the lowest available home loan interest rates. | 5.85% | 6.21% | $0 / $375 | 80% | $50,000 / $750,000 |
|
 Bankwest Online Home Loan | A low interest rate home loan with a $0 application fee and ongoing maintenance fees. This offer is exclusively available by applying online. | 5.97% | 5.97% | $0 / $0 | 80% | $100,000 / $1,000,000 |
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State Custodians Mortgage Company Standard Variable Offset Loan | Awarded Mortgage of the Year 2012 – this multi-award winner features 100% offset and a loyalty 0.25% rate drop after 5 years. | 6.02% | 6.23% | $0 / $345 | 95% | $150,000 / $1,000,000 |
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Illawarra Home Loans Bank Beater Home Loan | A low variable rate, beaten down even further by 0.05% p.a. after 5 years. | 6.07% | 6.35% | $0 / $345 | 90% | $250,000 / $1,000,000 |
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