If you’re finding it difficult to save a 20% home loan deposit, you might still be able to borrow by paying Lenders Mortgage Insurance. We’ll run through how LMI works and what it might mean for you.
How Lenders Mortgage Insurance (LMI) works
Lenders Mortgage Insurance (LMI) protects a lender if you’re unable to meet your home loan repayments and there’s not enough proceeds from the sale of your property to cover the loan amount.
While LMI protects lenders from any loss, it doesn’t cover you for any loss.
LMI is charged as a one-off cost by the LMI Insurer to us. We pass this cost on to you as a fee. The fee is payable when your home loan is settled or drawn down, with an option to pay using your own funds or to have the amount added to the total you borrow.
Benefits of Lenders Mortgage Insurance
If you can meet the normal lending criteria, but you can’t manage to save the 20% home loan deposit, LMI can help you get the loan and buy the house you want.
What does Lenders Mortgage Insurance (LMI) cost?
The cost of LMI depends on a few things including:
- the purchase price of the home you’re buying
- the deposit you have available
- the value of the property you’re buying
- the type of loan you’re applying for.
When you apply for your home loan, one of our bankers or your broker will give you an estimate of the LMI fee you’ll need to pay. The LMI fee will then be confirmed in your loan contract.
Is Lenders Mortgage Insurance refundable?
If you repay your home loan within two years of the settlement or drawdown date, you may be entitled to a partial refund of the LMI fee.
If your settlement or drawdown date was on or after 25th November 2019, you’ll be refunded:
- 40% of your LMI fee if you repay your home loan within 12 months of the date of settlement or drawdown.
- 20% of your LMI fee if you repay your home loan between 12 and 24 months after the date of settlement or drawdown.
You won’t be refunded any of your LMI fee if your drawdown or settlement date was before 25th of November 2019; or if you don’t repay your home loan within two years of your settlement or drawdown date.
Is LMI transferable to another financial institution?
No. If you refinance your home loan to another bank or lender, you won’t be able to transfer the LMI fee you paid.
What if I'm unable to make my home loan repayments?
If you’re unable to make your loan repayments and default on your home loan, we may have to sell your property to cover the outstanding loan amount. A lender will incur a loss if the property is sold for less than the outstanding loan amount. LMI helps protect a lender against this loss, by paying them an amount (in accordance with the LMI policy). The LMI insurer may then seek to recover this amount from you as the borrower or if you’re the guarantor.
LMI vs. Mortgage Protection Insurance
LMI is entirely different to Mortgage Protection Insurance. LMI is insurance the lender takes out to protect themselves. Whereas Mortgage Protection is insurance that you take out to protect yourself if you’re unable to make your home loan repayments due to illness, unemployment, death or disability among other things.
Experiencing financial difficulties
If you’re experiencing financial difficulties or think that you may be unable to make your home loan repayments, contact NAB Assist on 1800 701 599. Our NAB Assist team will assess your situation and work with you to help get you back on track.
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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.