Lenders Mortgage Insurance (LMI) is insurance designed to protect the lender in the event the borrower defaults on their loan. With rising property prices and the need for bigger and bigger deposits more and more loans are covered by LMI.
Typically LMI applies when you borrow more than 80% of the home value. LMI is one off fee and be can be paid upfront or added to the loan. LMI typically ranges between 0.5% and 3.5% of the loan. The greater then percentage of the property value you borrow against the higher the LMI percentage.
LMI can avoided in certain circumstances:
a. certain borrowers can avoid LMI
b. certain lenders may let you borrow up to 85% of the property value. You will need a smaller deposit but the lending criteria can be much harder.
As a borrower you need to be careful as some lenders will claim they do not charge LMI. The truth is they may not charge a fee called LMI but the fee is may be called something else. For example a Loan Administration Fee or some other variation.
While LMI is a cost with rising property prices LMI may be a necessary evil to allow you to enter the property market and avoid price rises.