Lenders Mortgage Insurance
Applying for a home loan can be an overwhelming, complex and, if you try to do it yourself, an unnecessarily tricky and lengthy process. It doesn’t help when the names of the different financial products and their acronyms add to the confusion. One area that often confuses is the difference between Lenders Mortgage Insurance (LMI) and Mortgage Protection Insurance (MPI). So what is the difference between them you may ask?
Prior to 1965 the banks and other lenders would only approve loans up to 80% as a maximum of the property value. This made it very difficult for first home buyers to get into the property market. Banks were reluctant to lend more than 80% of the property value because they were at risk of losing money if the home loan was not repaid.
Lenders Mortgage Insurance was introduced into Australia in 1965 to help first home buyers to bridge the deposit gap. The insurance premium is paid by the borrower as a one-off payment to the lender at settlement or more usually is added, as a capitalised amount, to the loan amount. Lenders will stipulate whether they require you to take out Lenders Mortgage Insurance. This is more than likely if you are borrowing more than 80% unless you are as Medical Professional or you are using Homestart who do NOT charge Lender’s Mortgage Insurance (LMI) even for loans of 95%.
If you are self-employed and are unable to satisfactorily verify the income necessary to service your loan, with the normal standard minimum paperwork for a self-employed person, then you may well have to pay Lenders Mortgage Insurance (LMI) if you are seeking to borrow over only 60% of the property value. (See Low Doc Loans for further details of non-confirming loans).
Since April 2009 in Australia it is no longer possible to borrow 100% or the value of a property. The ‘great Australian dream’, we have all been told, is still to own your own home, with apparently 70% of the population doing just that.
Unfortunately achieving this is becoming increasingly difficult. With high house prices, saving for a deposit and then qualifying for getting a loan for the remainder of the asking price, plus fees and charges, is harder than ever. Thankfully with the availability of Lenders Mortgage Insurance (LMI), borrowers can get onto the property ladder much sooner with a smaller deposit.
If you are a Medical Professional there are certain lenders who will allow you to borrow up to 90% instead of the usual 80% before you need to factor in Lenders Mortgage Insurance.
There is yet one other lender, that only operates in South Australia, that will not charge anyone for Lenders Mortgage Insurance even if you borrow up to 95%. (Call me now if any of this is of interest on my mobile number which is 0451 596 575.
Lenders Mortgage Insurance in Australia is provided by either Genworth or QBE. It is very often the insurer that declines a loan application if it is over 90% and not the bank, as ultimately it is the insurer who is taking the risk. That said, there are certain banks that can make the decision on whether a loan should be approved without first seeking the approval of the insurer, even up to 95% Loan to Value Ratio (LVR). This is known as “Delegated Underwriting Authority” (DUA). This is another good reason to use a broker for your loan application rather than try to do it yourself as he or she will know which banks have DUA.
Who does Lenders Mortgage Insurance (LMI) cover?
One of the most important things you need to understand is that Lenders Mortgage Insurance covers the lender NOT the borrower. Lenders Mortgage Insurance covers the lender in the unfortunate event that the borrower is unable to maintain mortgage repayments and thus defaults on their loan. Lenders Mortgage Insurance (LMI) provides assurance to the lender that the loan will be repaid to them come what may.
However, you should note that this does not protect your asset, the property in question. Though the lender is covered, you would still be at risk of losing your property.
If you need help getting a home loan or assistance with any of the issues covered on this site, please call me, Vincent Woodall directly on 0451 596 575 or you can send me an email to email@example.com or alternatively please complete and submit the enquiry form below.
I am a mortgage broker in Adelaide and I am –
- Fully accredited by the Mortgage & Finance Association of Australia
- Fully qualified with the Diploma of Finance and Mortgage Broking Management
- Plus I have satisfied stringent financial and criminal record background checks.
Find a home loan with someone you can trust and who will ensure you’re getting the right home loan for you. Vincent Woodall. 0451 596 575 or alternatively send me an email to firstname.lastname@example.org .