Lenders Mortgage Insurance (LMI) protects banks and other lenders in the event of mortgage default and shortfall.

Shortfall occurs when proceeds from the sale of a property are not enough to cover the outstanding amount owed.

Lenders may be able to recover the shortfall from the LMI provider but the LMI provider may seek to recover the shortfall from the borrower or their guarantor.

LMI does not afford you with any protection, it is there for the lender’s protection and you will have to pay the insurance premium. It is not to be confused with Mortgage Protection Insurance.

LMI may be required if your deposit is less than 20% of the lender assessed value, or a Loan to Value Ratio of more than 80%.

Borrowers with an LVR of more than 80% are usually required to pay for the LMI and they are considered to be a high risk to the lender.

Usually LMI is paid as a one-off premium which could be financed into the home loan and the lender generally selects the insurance company they want to go with.

Some lenders may let the LMI be added to your loan amount and paid off with your loan repayments.

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