Vision Finance and Property
Chartered Accountants & Business Advisors
Super Back Office

Lenders Mortgage Insurance

What is Lenders Mortgage Insurance (LMI)?
It is an insurance policy that covers the lender in case of default. If the property sold does not cover the loan amount then the insurance company reimburses the lender and negotiates an agreement to repay the loan with the home owner

When is LMI needed?
Most lenders require that you pay a one off LMI insurance premium when the loan amount is over 80% of the property’s value

How much does it cost?
Like anything relating to insurance – cost is related to risk – and will depend on two main factors

  1. Your Loan to Value Ratio or LVR (the % you borrow compared to the property value) – the higher the LVR, the higher the premium.
  2. The loan amount – the higher the loan amount, the higher the premium – because the premium is normally a % of the loan amount.

For example a loan with an 81% LVR may only incur a premium of 0.3% of the loan amount; however a 100% Home loan may attract a 2.8% premium.

Different Considerations

These scenario’s generally apply if you intend to borrow over 80% of the property value

  • Genuine savings - most insurers require 5% genuine saving over a 6 month period. Some insurers can look at 3% genuine savings, or even 0%
  • Self-employed - traditionally a self employed applicant have required 2 years tax returns, however some insurers may only require one full year’s tax returns but be trading for two years.
  • Probation - as long as you are not in a probationary period, insurers are generally happy to accept full time or permanent part time work for 1 month or more. With casual employment the minimum time is usually 6 months. As a rule of thumb – the more stable your occupation or job, the more comfortable the insurers be
  • Other income sources - with regards to other income such as Centrelink or Maintenance, some insurers may consider 100% of this income; others may not accept it at all.
  • Credit impairment - blemishes on Credit files are a big issue with the Mortgage insurers. It is very important to keep any loans and credit cards up to date. However with a good explanation and provided it is of a minor nature, we can usually convince the lenders of the applicants credit worthiness.
  • Property type and location - the location of the property can also be an area of concern for insurers. Loans above 80% will not always be available if the postcode is in a perceived high risk area – eg, certain inner city and rural postcodes
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