What is Lenders Mortgage Insurance?

Lenders Mortgage Insurance
There is a very common misconception that Lenders Mortgage Insurance (LMI) is designed to protect both the lender as well as the borrower in the event of a loan default. The reality of this is that in case of a loan default, LMI covers the lender for any shortfall. Basically, LMI, as required by Australian banks, is charged to borrowers who have less than a 20% deposit of the property purchase price. It is an additional cost outside of the standard fees and charges related to purchasing. As LMI is aimed at compensating lenders and investors for loss due to loan defaults, borrowers/ purchasers need to ensure that they are happy to pay these rates, as they can be quite expensive for riskier loans. So, can LMI be included in the loan amount? The answer to this is Yes, however borrowers should note that this will make the total loan amount higher, and further result in increased minimum monthly repayments. It is also important to note that insurance providers will pursue borrowers who have defaulted, for the balance of their loan, after it has been paid out. Some borrowers have even declared bankruptcy after being pursued. Further, the biggest takeaway from this is that it is crucial to do your due diligence, before jumping into any commitments. Factor in potential future interest rate increases, and seek the correct and professional financial/legal advice before signing up for a loan. At Calla Property, due diligence is an integral part of our property research. We consider many factors that contribute to the choice of properties that we recommend to our clients. The due diligence that we apply considers both where you’re going, and where you’re at currently, and once one of our finance strategists understands the goals you’re trying to achieve, we can then match the strategy with the best property. To find out more about property investment, and about how Calla Property can help you; contact us on 02 9016 2852! We look forward to helping you build your investment portfolio.

Leave a comment

Your email address will not be published. Required fields are marked *