Lender’s Mortgage Insurance – Win-Win Situation for the Lender and the Borrower.

The buyers of a property, who do not have enough money in hand have an option of borrowing the money by putting their existing property as a mortgage. The borrower, however, pays an amount as security interest to the lender until the time he manages to repay the loan amount. The mortgage works as a security for the lender of the amount, in case he fails to make the repayments.

Under Lender’s Mortgage Insurance or LMI, the borrower of the amount is supposed to make a one-off payment to protect the lender against the event where he; the borrower might fail to make your home loan repayments. The Lender’s Mortgage Insurance is designed to protect the lender from the default in repayment by the borrower.

Under the LMI policies, a financial institution can make a claim if the borrower defaults on the loan, and the sale of the property doesn’t equal the value of the mortgage. Contradictory to the misconception that there is a benefit to the borrower from LMI, it is the Lender who finds his way out of the risk as LMI allows him to lend larger amounts and approve more home loan applications.

Mortgage Insurance is necessary when purchasing a property if you have less than a 20% deposit or insufficient equity in an existing property. For the ones who wish to buy a property, but do not have a large deposit, LMI is one of the most common ways to buy the property of their dreams. The borrowers are required to contribute 20% before the agreement of the provision of the loan. This is done majorly to protect the lender against the risk associated with providing the loan to the borrower, in case of default in repayment. This clearly states that if you borrow more than 80% of the amount of your property, then you must pay the Lender’s Mortgage Insurance on your loan. You can use an LMI calculator find out how much amount you would be paying. Your Mortgage Broker will help you understand how the calculations work and will take you forward in the procedure.

In the case of Lender’s Mortgage Insurance, the lender passes the risk of non-repayment to the mortgage insurer, which enables them to offer the same amount but with less of a deposit. LMI is not same as Mortgage Protection Insurance as it does not cover you in the event of death, sickness, unemployment or disability. It protects the lenders against a loss wherein the borrower fails to repay his home loan. In case, the security property is required to be sold as a result of the default, the net proceeds of the sale may not always cover the entire outstanding balance on the loan. In such a situation, the lender can make an insurance claim to the Mortgage Insurer for the reimbursement of any shortfall, which is calculated in accordance with the terms of the insurance policy. The claim is a once off premium and can also be capitalized with the loan. You can use the LMI Calculator to get an idea about the interest that you would be paying in such a case.

However, when it comes to Home Loans, professionals like Medical Practitioners, CAs or CPAs have certain advantages over the others. Banks consider 90% Loan to Value Ratio for such designated professionals. Hence, they may see some extensive savings on mortgage insurance and may find it easier to have their loan approved

This information is general only and is subject to change at any time. Your complete financial situation will need to be assessed by your Mortgage Broker before acceptance of any proposal or product.