Credo Video Series - What is Lenders Mortgage Insurance (LMI)?

Credo Video Series - What is Lenders Mortgage Insurance (LMI)?. 3 Ways To Generate Free Mortgage Protection Leads

Credo Video Series - What is Lenders Mortgage Insurance (LMI)? video duration 3 Minute(s) 1 Second(s), published by Credo Financial Group on 26 08 2019 - 04:09:50.

Director Nathan Taddeo explains what Lenders Mortgage Insurance, or LMI is and what is it used for
Transcript: - Nathan Taddeo from Credo and today we're SteveHouston #AgentSuccessAcademy #MortgageProtectionSales What Mortgage Protection Final Expense Product do I sell as an Agent? What is .

This video briefly describes what Mortgage Protection is
To see if you qualify for mortgage protection insurance, please visit http://www.mortgageprotection.io SteveHouston #AgentSuccessAcademy #MortgageProtectionSales The Top 5 Things you must know in Mortgage Protection Product Selection or risk failure and https://www.DavidDuford.com - 3 Ways To Generate Free Mortgage Protection Leads Discover 3 easy ways to generate free mortgage protection insurance .

Director Nathan Taddeo explains what Lenders Mortgage Insurance, or LMI is and what is it used for.

Transcript:
- Nathan Taddeo from Credo and today we're gonna discuss lender's mortgage insurance. So lender's mortgage insurance, or LMI is generally a condition of the loan that you, the borrower pay, when you're borrowing more than 80% of a property's value or purchase price.

Now, it's important to understand, it protects the bank in the unfortunate event you default on your home loan, and them having to sell the security property. And when the loan demand is above 80%, it seen as a higher risk by the lender, so they go get insurance for that risk. Now this risk relates to the event where you fail to make your payments, and they have to repossess and resell the property.

LMI does not provide you with any cover. It's only for the bank. They type of insurance it gets confused with is a mortgage protection insurance policy which does exist and can protect you as a borrower and cover your mortgage payments in the event of any unforeseen circumstances.

But, let's go back to LMI which is the subject of today's video. So, when a lender agreed to lend you the money, there's of course a small risk that you won't repay that and they won't get their money back. So whilst they have the house as security, that security may not be enough to cover the outstanding loan if they get to that point where they have to sell the property. It's important to be aware LMI only covers a lender if you default on your repayments and they're unable to secure the full outstanding debt still owing when they go and sell their property. So let's use an example. If you're purchasing a home for $500,000, you're gonna put in $50,000 to only then borrow 450, you'll be borrowing then 90% of that property's value. You'll therefore be subject to LMI, which in this case, we'd say is about $10-$12,000, depending on the insured lender. Now, assuming you've used all your money to get to that point, you borrow the LMI on top of the loan and add it to it. This is called capitalizing the LMI.

Now if you default on this loan a few months later, and the bank has to go and sell your property, they need to sell it for enough to recover that loan, the insurance premium on top and all their costs. If they don't, the LMI would be triggered, like with any insurance premium, and paid by you for them to get their money back.

Okay, now the bigger the percentage of the property's purchase price you've borrowed, the greater the amount you're likely to pay on insurance. So the previous example, the loan was let's say, 82% instead, so down at 410, the LMI would probably be less than the 10 or $12,000 we said. You should also know that there are some cases where you can't capitalize the LMI, as you're already up at the bank's acceptable level. See some lenders will only lend up to 97% including the capitalized LMI, for an owner-occupied property and in some cases they'll even limit it to 90% including LMI for an investment property.

Okay, now in this case, it's getting harder and harder to save 20% plus the additional costs required to purchase your home these days. So you need to understand the LMI might be necessary to get you into property sooner, rather than later. For first time buyers, particularly those struggling to save a deposit, but more than comfortable to meet their mortgage repayments required, it's accepted as just part of the process, providing the potential for you to own your home sooner and get out of that rental trap as quickly as possible with a small deposit.

Now there's also some products around to avoid LMI if you have the means. Such as a family pledge, which we have another video on. But to discuss any of this or your numbers further, contact us at the office today on 03 9032 6700.