Buying and Selling At The Same Time

So, what is LMI or Lenders Mortgage Insurance? 

Lenders Mortgage Insurance or LMI is insurance that a lender takes out to insure itself against the risk of not recovering the outstanding loan balance if you, the borrower, are unable to meet your loan repayments and the property sells for less than what is outstanding on the balance. It is really important that you understand the LMI covers the lender NOT you (or any guarantors), even though the lender will pass on the cost of the LMI to you. 

Well, how does LMI help me then? 

LMI helps people buy homes. If you want to buy a home and you meet a lenders requirements but do not have a substantial deposit (usually 20%), it can be difficult to find a lender who will work with you. If you are in this situation, LMI makes it easier for you to obtain mortgage finance without finding a guarantor (normally a parent with equity in their own home they are willing to offer). LMI reduces the risk of loss to the lender if you stop paying your loan repayments, and because it reduces the risk it makes lenders more likely to work with you to achieve your purchase with a smaller deposit. 

How does the lender get the premium paid? 

The lender will pay the LMI insurance premium to the insurer at settlement, the day you get your keys. This is a once off, up-front payment and covers the lender for the life of the loan (which can be up to 30 years). The amount of the LMI premium depends on the lender, how much the lend you and the size of your deposit. The cost of LMI is usually passed on to you as a fee (you may hear the term Risk Fee), this is because the cost of the LMI is part of the lenders cost of providing finance to you. Some lenders will let you add the cost of LMI to your loan (capitalize it). 

As your broker I will tell you what the LMI will cost and the best options available to you.