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LMI is a one-off insurance premium payable by the borrower designed to protect the Bank against the potential loss we may incur if the borrower is unable to repay their loan. If the security property is required to be sold before the loan is repaid, LMI can cover the Bank for a shortfall where the sale price of the property does not cover the outstanding loan balance plus claimable costs. The borrower still remains liable for the shortfall even after the mortgage insurer has paid that amount to the Bank. LMI should not be mistaken for separate insurances, such as loan protection insurance which could help pay your loan repayments if you’re unable to work or your loan balance if you pass away. The LMI premium is not a Bank fee or an establishment fee. It is collected on the borrower’s behalf and passed to our mortgage insurance provider.
A customer-friendly Lenders’ Mortgage Insurance and Low Deposit Premium fact sheet is now available to help you explain LMI and to provide to the customer.
The LMI and LDP premium is non refundable.
When is it required?
Lenders' Mortgage Insurance is required where there is an increased risk associated with a home loan. The circumstances of the loan will determine whether LMI may apply.
What are the benefits of LMI?
For the lender
LMI minimises the potential risk associated with a home loan. It gives the Bank the confidence to approve more mortgages and enhances our ability to lend to a broader range of customers. This helps the Bank remain competitive in the home loan market.
For the borrower
Essentially this gives people, with a higher risk loan, the opportunity to enter into the property market (e.g. with a small deposit). LMI also allows property investors to have higher lending ratios, giving them the opportunity to leverage off the associated benefits of negative gearing.