Many lending institutions require borrowers to contribute a 20% deposit before they will agree to provide a loan. This is largely to protect against the risk associated with providing the borrower with the loan in the event that they default. By using LMI, lenders are able to pass on this risk to a mortgage insurer such as Genworth, which in turn enables them to offer the same loan amount but with less of a deposit.
LMI should not be mistaken for Mortgage Protection Insurance, which covers your mortgage in the event of death, sickness, unemployment or disability. LMI protects lenders against a loss should a borrower default on their home loan. If the security property is required to be sold as a result of the default, the net proceeds of the sale may not always cover the full balance outstanding on the loan. Should this be the case, the lender is entitled to make an insurance claim to Genworth Financial for the reimbursement of any shortfall, calculated in accordance with the terms of the insurance policy.
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