What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance (LMI) is an insurance that covers us (NAB) if you’re unable to meet your loan obligations and there is a shortfall remaining. A shortfall is any amount of the loan still owing after your property has been sold. LMI will cover us for the difference. Keep in mind, LMI doesn’t protect you, and you’re still responsible for repaying your outstanding loan amount.
What are the benefits of LMI to you?
We know it’s not easy to save for a deposit to buy a house.
LMI helps you buy a property faster with a smaller deposit by allowing you to borrow more than 80%. In some cases, you may become a home owner with a deposit as little as 5%.
How LMI works
You’ll be charged LMI when your loan to value ratio (LVR) is more than 80%. We work out your LVR by dividing the amount of your home loan by the valuation. For example, if your property valuation is $300,000 and your loan’s $240,000, then your LVR is 80%.
There may be other circumstances where LMI is also needed. Speak to a NAB banker to find out when LMI is required.
How much does it cost?
LMI is a one-off payment, based on a few things like LVR and how much you borrow. If LMI’s needed, you’ll need to pay for it. Your banker can tell you how much LMI will cost and give you the option to pay for it up front or to add it to your loan. Also note, if you change your loan contract, like increase your loan amount, you may have to pay LMI again.
What happens if you refinance your loan to another bank?
Your LMI premium is unique and can’t be transferred to another bank or financial institution. This means if you wish to refinance, you may need to pay LMI again with a new lender.
Be mindful, if you have LMI on one loan and want to apply for another loan you’ll most likely have to pay for it again if your LVR is above 80%. Each LMI premium covers that particular loan only – one LMI premium doesn’t cover multiple loans
Lenders Mortgage Insurance vs. mortgage protection
It’s easy to think these two are the same, but they’re not. Mortgage protection insurance covers your repayments if you lose your job, if you can’t work due to an illness, or if you die. LMI covers NAB in the unfortunate event you’re unable to meet your loan obligations. If this happens, contact us immediately and our Customer Care team can help you.
To sum up, LMI has basically given us the opportunity to offer home loans to a larger group of people. If LMI didn’t exist, we wouldn’t be able to offer home loans for people wishing to borrow more than 80%.