An overview of LMI.
Achieving the dream of home ownership can be one of the most exciting times in your life. It can also seem unattainable primarily due to the length of time it can take to save the substantial home deposit that is usually required.
With the support of Lenders’ Mortgage Insurance (LMI), we may be able to accept a smaller deposit and provide a home loan to you that might not otherwise be available.
LMI protects us, as the lender however, you can also benefit from the use of LMI. In addition to potentially obtaining a home loan with a smaller deposit than is usually required, you may be able to purchase a home now and stop paying rent or buy a better property than otherwise might be the situation.
John and Sally have located a property they would like to buy, with a purchase price of $650,000.
Traditionally they would require a 20% deposit ($130,000)and borrow the difference of $520,000 from us, their lender. With LMI, John and Sally can provide a 5% deposit ($32,500) and borrow up to 95% ($617,500) of the purchase price.
One of the benefits of LMI is that it allows John and Sally to purchase the property now and stop paying rent rather than waiting to save a larger deposit.
Note: the above does not take into consideration any fees, charges or transaction costs.
LMI might be partially refundable.
John and Sally borrowed $600,000 to buy a home valued at $650,000. As their deposit
was less than traditionally required, LMI was required and the LMI fee was capitalised into the Loan. (included in the $600,000 borrowed).
Due to unforeseen circumstances, John and Sally are not able to meet their loan repayments, defaulting on the loan and accumulating $15,000 in unpaid interest. The end result being that the property is sold.
In this scenario the property sells for, say $550,000. The outstanding loan balance is $625,000 (which includes the amount borrowed, unpaid interest and other fees associated with selling the property) leaving a shortfall of $75,000. The LMI provider pays Us, the lender the shortfall. The LMI provider then has the right to seek repayment of the $75,000 from John and Sally.
First Home Loan Deposit Scheme
We could help you buy your first home sooner with a deposit as little as 5% to get a home loan without paying Lenders Mortgage Insurance( LMI) fees.
• Visit the QBE LMI website at qbe.com/lmi
• Visit the Australian Securities and Investments Commission’s website at moneysmart.gov.au
LMI may be required if the borrower doesn't have a minimum of 20% deposit to take out a home hoan.
Lenders' Mortgage Insurance (LMI) is an insurance that protects the lender in the event of default by the borrower.
The cost of LMI generally depends on the borrower's LVR (Loan to Value Ratio) and amount of money they need to borrow. The cost can vary depending on the lender. For more information on LMI when taking out a Home Loan at People’s Choice please speak to one of our Home Loan Advisers or call 13 11 82.
To avoid Lenders’ Mortgage Insurance it is generally recommended the borrower keep their LVR (Loan to Value Ratio) below >80% plus any fees (conveyancer, stamp duty, building inspection, etc). If the borrower has a deposit of 20% or more of the property value, then they may not be required to pay LMI. For more information on whether you’ll need LMI please speak to one of our Home Loan Advisers or call 13 11 82.
LMI is a once-off payment made by the borrower at the time of loan settlement, which protects the lender should the borrower no longer be able to meet their loan repayments.
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