What is Lenders Mortgage Insurance?
The lender is protected by Lenders mortgage insurance (LMI) in the unfortunate event of you defaulting on your home loan. When lenders agree to lend you money, there is a small risk that they won’t get the money back if you are not able to meet the repayments. Although they have the house as security, if property values decline that security may not be enough to cover the outstanding loan when the time comes for you to sell it.
When does Lenders Mortgage Insurance Apply?
LMI is commonly required when the Loan to Value Ratio (LVR) is 80% or more. This occurs when more than 80% of the value of the property is required from the lender by a borrower. (Want to know more about LVR? Read out blog post for more information here.)
This insurance helps lenders broaden the net of who they are able to lend to by taking some of the risk out of lending the money. It means that more people are likely to get a loan and the home they want sooner.
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