About LMI

1.What is Lenders Mortgage Insurance?
2.What does PMI insure?
3.Who uses LMI?
4.How does LMI benefit me?
5.Who pays the LMI Premium?
6.How is the fee for Lenders Mortgage Insurance paid?
7.How do I apply for LMI?
8.What happens if I can't repay my mortgage on time?
9.Where can I go to find out more information?

What is

Lenders Mortgage Insurance?

Lenders Mortgage Insurance (LMI) protects your lender in the event of you defaulting on your home loan. In the event of a loan foreclosure, if the property is subsequently sold and the amount from the sale is not enough to repay the loan in full, this insurance will meet the shortfall for the lender.

LMI should not be confused with Mortgage Protection Insurance, which covers you for the payment of your mortgage instalments in the event of unforseen circumstances including unemployment, illness or death. This insurance is paid annually and can vary depending on the outstanding balance of the loan.

What does

PMI insure?

PMI insures mortgage loans for residential property in Australia and New Zealand. This encompasses houses, townhouses, home units, villas, vacant land and semi-detached homes.

Who uses

LMI?

Lenders Mortgage Insurance is taken out by Banks, Building Societies, Credit Unions and non-banks lenders.

These institutions use the money from deposits held in savings accounts and term deposits, or borrow, to provide mortgages to customers. In agreeing to lend a customer money, banks take a risk that they won't get the money back. Although they have the house as security, if property values decline that security may not be enough to cover the outstanding loan. Because they operate in a very competitive environment, these lenders opt to take out LMI on these loans rather than increasing interest rates, and let the LMI provider wear the risk.

LMI providers are heavily regulated by government authorities to ensure they hold enough money in reserve in the event that a large number of customers default on their loans and claims increase substantially or unexpectedly.

How does

LMI benefit me?

Before LMI was available, lenders required a deposit of 20% to protect the lender in the event of foreclosure, where the property had to be sold at a price less that the outstanding amount of the loan.. With the ability to pass on the risk of default to an insurance company through LMI, lenders have been prepared to accept a lower, or even no, deposit and also to offer lower rates for mortgage lending than they would otherwise be able to offer borrowers.

By reducing the deposit required and helping to minimise lending interest rates, many borrowers are able to purchase a home much earlier, or buy a better property, than they would otherwise have been able to afford before LMI.

For those with a deposit of 20% or more, LMI provides greater choice by offering borrowers the potential to free up cash for other priorities such as furnishings, renovations or additions.

For property investors, LMI allows borrowers to have higher borrowing ratios, giving them the opportunity maximize negative gearing benefits.

LMI has enabled lenders to offer a wider range of home loans to suit individual circumstances. As the banks and other lenders have widened their product range, the mortgage industry has become more competitive, resulting in greater choice and lower interest charges for borrowers.

Who pays

the LMI Premium?

The LMI provider's contract of insurance is with the lending institution and the premium is usually passed on to the borrower as a cost of providing the loan.

The loan where a deposit of less than 20% -- or even no deposit -- is required represents a higher risk to the lender than one where a traditional 20% deposit is paid. LMI greatly reduces the lender's risk of loss and the associated cost is passed on to the borrower. Ultimately, LMI gives many home buyers or investors the benefit of accessing the property market sooner than if they had needed to save for a deposit.

How is the fee

for Lenders Mortgage Insurance paid?

Lender's mortgage insurance in most cases is charged as a one-off premium. The amount will vary depending on how much money is being borrowed and the size of the deposit, if any.

Depending on the lender, and the type of loan as well as the LMI product, it may be possible to add the LMI premium to the borrower's overall loan amount requiring no upfront payment. Borrowers should ask their lender about this option.

GST is payable on all LMI premiums and is included in the premium rate quoted by lenders. Subject to various State Government regulations, stamp duty may be payable on LMI premiums. Where applicable, this amount is included in the total premium quoted.

How do I

apply for LMI?

Your lender will prepare and provide all necessary documentation and information should your mortgage require LMI.

In order to qualify for LMI, your lender will check to ensure you are able to make the repayments on your loan, and that your desired property meets the appropriate LMI underwriting guidelines.

Where can I

go to find out more information?

You can contact your lender with any further questions you may have about LMI and your loan.

Alternatively, you can contact the Insurance Council of Australia (ICA) or Mortgage & Finance Association of Australia (MFAA) for more details.

ICA	(02) 9253 5100
	www.ica.com.au
MFAA	1300 554 817
	http://www.mfaa.com.au/