What is lenders mortgage insurance?

Lenders mortgage insurance (LMI) is one way to buy a property without having the 20 per cent deposit which is typically required by most lenders. 

With LMI, lenders may provide finance at a higher proportion of the purchase price, allowing prospective home buyers to purchase a property with a smaller deposit than would otherwise be required.

LMI is insurance that protects the lender in the event that the borrower defaults on their home or investment 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 for the reimbursement of any shortfall. Where a claim for loss is paid to a lender, Genworth may seek recovery from the borrower, or any guarantor, for any shortfall amount.

As the lenders risk has been reduced, it is able to lend the funds for a property to a borrower with a smaller deposit – sometimes as low as five per cent of the value of the property.

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