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How does Lenders Mortgage Insurance (LMI) work?

Frequently Asked Questions



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Frequently Asked Questions
How does Lenders Mortgage Insurance (LMI) work?

Lenders Mortgage Insurance (LMI) is generally needed when your loan amount is greater than 80% of the value of the property. This insurance is paid for by the property purchaser and is put in place to protect the lender. If you, the borrower, are unable to make your repayments, the lender will reposes your property and sell it at market value. If the lender is unable to sell the property for more than the outstanding loan balance, they will use the LMI policy to claim back the remaining balance from their insurer.

LMI is usually paid as a one-off lump sum at the time of settlement but in many cases it can also be added into the loan amount and paid off over the life of the loan – a term known as capitalising the LMI. We can show you financial models that highlight the pros and cons of your particular situation to assess what option is right for you.

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