An overview of Lenders Mortgage Insurance.
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.
• Visit the QBE LMI website at qbe.com/lmi
• Visit the Australian Securities and Investments Commission’s website at moneysmart.gov.au
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