There’s a lot of confusion surrounding lenders’ mortgage insurance and who it actually benefits. A common misconception is that it protects borrowers, should they be unable to meet their mortgage repayments. However, there’s actually more to it than this. So, to help dispel the myths, we’ve pulled together some of the more frequently asked questions on this topic.
Lenders’ mortgage insurance, also commonly referred to as LMI, protects lenders in the event that a borrower defaults on a loan and the property sale proceeds are not sufficient to recover the outstanding loan balance and associated costs. By having LMI in place, lenders are then able to make the loan available at lower rates.
Although LMI protects the lender, it is the borrower who bears the cost. LMI is payable on settlement of the loan as a one-off premium. However, many lenders allow borrowers the option of adding the LMI premium to the loan amount in order to help reduce the upfront costs associated with purchasing property. It’s important to understand that by capitalising the premium into the loan amount this way, you will be paying interest on the premium amount for the duration of the loan term.
Applying for LMI is the responsibility of your lender, so you won’t need to organise this. Your lender will check you meet the insurer’s policy criteria and will handle the LMI application at the time of assessing your loan. More often than not, this process occurs in the background with little involvement required by the borrower.
To find out more information about your borrowing options or LMI get in contact with one of our Liberty Advisers or call 13 11 33.
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