What is lenders mortgage insurance?

Lenders Mortgage Insurance (LMI) is insurance taken out by the lender in the event the borrower cannot meet the repayments on their loan and defaults under the loan contract. In the event that the sale of the property (security) does not cover the outstanding debt owed to the lender then the LMI will pay the lender for their loss.

Mortgage insurance premiums are usually paid by the lender if the amount borrowed is 80% (or less) of the property value. If the amount borrowed is above the 80% loan to value (LVR) the premium is paid by the borrower.

It is important to note that this type of insurance does not cover the borrower in any way. It is advised that all borrowers consider taking out income protection insurance and or life insurance to cover themselves and their families in the event of accident, trauma or death.

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