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LMI-Lender Mortgage Insurance/ Low Equity Fee

Although lender mortgage insurance is not statutory and it is not required by law. However when a borrower receives a loan and does not pay the standard 20% down payment, then LMI will be required by the lender to minimise the risk of latent losses. The borrower will be required to pay a one-time fee to the lender as Lender Mortgage Insurance. 

The amount of lenders mortgage insurance premium depends on the loan amount. The amount of the premium will be set out in Loan Agreement. Here are some important things that you should know about lender mortgage insurance or low equity fee:

  • Lenders Mortgage Insurance (LMI) paid by a lender to an insurance company on low equity loans. 
  • Generally, this insurance premium is passed on to the borrower.
  • This insurance premium either payable in cash or can be added to the loan.
  • The premiums are paid only once, at the time when the loan is granted and first drawn. 
  • LMI minimises the risk of the lender
  • To avoid paying LMI, a borrower should have to save money until they can make a full 20% down payment.

The LMI premium is calculated on:

  • The actual amount that you want to borrow
  • The LMI product type and,
  • The loan-to-value ratio (LVR)

Costs and Benefits

If the borrower is not capable to pay off the loan amount and also if the selling price of the property does not cover the outstanding loan amount then Lenders Mortgage Insurance (LMI) protects the lender. It is also beneficial for the first-time home buyers as it allows them to buy a home much faster.  

Complications To Negotiations:

If a borrower is not able to pay the loan amount and want the approval to sell the property then LMI Company has the right to give the final decision and not the lender. But it adds complications to negotiations because most of times the borrower will have to negotiate through the lender who will take the case to the LMI company for final approval.

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