LMI is an insurance that lenders take out in order to be able to lend to borrowers who have have a smaller deposit than 20% of the value of the purchase price of a property.
Its purpose is to protect the lender in the event that the borrower defaults on the mortgage.
The one off insurance premium is charged to the borrower by adding it to the resulting loan.
While LMI protects the lender alone, it is an expense many investors are willing to take on as it also gives them an advantage of requiring a smaller deposit..
As a result, buyers are able to purchase properties more quickly.
In the event of loss, this insurance only protects the lender
It provides coverage for your mortgage repayments, which will be paid to the bank in the event that you default on your loan. If this happens, the insurer will then chase you up for the funds.
LMI typically costs between 1 – 2% of the loan but this can vary depending on:
- Deposit amount
- Type of loan
- Value of the property purchased
It is tax deductible on an investment property
If you would like to find out more about whether Lenders Mortgage Insurance will affect you or want to find out how much you need to save for your next purchase give our team you can
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