You can pay this cost to the lender at settlement or you may be able to be include the cost as a part of the loan (so the cost of LMI will be added to your loan repayments over the term of your loan). This is because the cost of buying LMI is a part of the lender’s costs of providing loan finance to you. The lender will normally pass on the cost of this LMI premium to you as a fee. The amount of the LMI premium depends on the lender, how much it lends to you and the size of your deposit. This once off up-front payment covers the lender for the life of the loan (which can be up to 30 years). The lender will pay the LMI premium to the insurer at settlement of your home purchase. Because LMI reduces the risk for the lender, it makes them more likely to lend to you even though you do not have a substantial deposit at the outset. LMI does this by reducing the risk of loss to the lender if you stop paying your loan repayments. If you are in this situation, LMI helps make it easier for you to obtain mortgage finance. If you want to buy a home and otherwise meet lender requirements, but do not have a substantial deposit (usually 20%), it can be difficult to find a lender who will lend to you. LMI is not mortgage protection insurance, which a borrower might separately take out to insure themselves against the risk of not being able to meet their loan payments. This means you cannot make a claim under the LMI – only the lender can make a claim. It is important to understand that LMI covers the lender, not you (or any guarantor), even though the lender will usually pass on the cost of LMI to you. Lenders Mortgage Insurance (LMI) is insurance that a lender takes out to insure itself against the risk of not recovering the outstanding loan balance if you, the borrower, are unable to meet your loan payments and the property is sold for less than the outstanding loan balance.
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