Lenders Mortgage Insurance or LMI is an insurance required by most lenders for loans over over 80% Loan to Value Ratio (LVR).
Borrowing over 80% of your property value requires Lenders Mortgage Insurance.
This is a one-off insurance that protects the lender in the case that you default on your mortgage. If a bank sale is required on your home, they may not be able to achieve a full price sale, therefore the insurance will recover their losses. Loans over 80% are deemed higher risk and for this purpose insurance is required.
How to avoid Lenders Mortgage Insurance:
2 factors contribute to the need for Lenders Mortgage Insurance, first your total deposit ( Total Deposit = Cash deposit + Stamps + Fees) and second the LENDERS valuation of the property.
For example: If you purchase a new home for $500,000 then your deposit to secure a loan at 80% and avoid Lender Mortgage Insurance will be $100,000. If your parents’ home is valued at $800,000 then the lender can hold your title for your parents’ home as well as your title home. This provides a sufficient security for the lender to allow you to avoid paying some physical cash towards your purchase.