Lenders Mortgage Insurance (LMI) is a fee charged by lenders for loans which have less than 20% deposit at time of purchase. If your total Loan to Value Ratio (LVR) exceeds 80% then LMI is payable, however if your LVR is 80% or less then it is not a chargeable fee.
LMI protects the lenders in the unfortunate event of the borrower defaulting on their home loan – which is at a higher risk when a lower deposit is used. The insurance fee is payable once off at time of settlement with all other lender and government charges, it is not a cost that you need to pay from cash funds as this can most of the time be capitalised onto the loan.
The way LMI rates are calculated based on a scaled formula; the higher the LVR, the higher the rate of LMI is charged, likewise the higher the total loan value, the higher the charge. As such a high LVR loan with a large loan amount can result in an extremely large LMI charge.
Lenders Mortgage Insurance is charged at time of settlement along with other charges such as Stamp duty but unlike Stamp Duty the LMI fee incurred is generally capitalised onto the final loan amount don’t hesitate to read more in depth in our article about LMI.