We have put together some Q&A’s that will answer some common questions regarding Lenders Mortgage Insurance (LMI).
What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance (LMI) is one way of getting into homeownership without having the 20% deposit which is typically required by most banks and financial institutions.
With LMI, lenders may lend a higher proportion of the purchase price, allowing a borrower to purchase a property with a smaller deposit than would otherwise be required. It may also enable the borrower to borrow at an interest rate that is comparable to a borrower who has a larger deposit.
Who is insured?
The lender is the insured party, not the borrower, nor any guarantor. Where a claim for loss is paid to a lender, Genworth may seek recovery from the borrower, or any guarantor, for any shortfall amount.
LMI should not be mistaken for Mortgage Protection Insurance, which covers a mortgage in the event of death, sickness, unemployment or disability.
How are LMI premiums calculated?
Unlike traditional insurance products, there is a one-off premium payable for LMI. This premium is charged by the LMI provider to the lender, who typically passes this cost on to the borrower. The premium is payable when the loan funds are advanced and it provides cover for the full term of the loan.
The cost of LMI varies depending on a number of factors, including but not limited to, the amount of the loan, the level of equity in the security property (how much of the borrowers own savings they contribute to the purchase) and the level of risk associated with the particular loan product the borrower chooses.
Some lenders will allow the borrower to add the cost of the LMI premium on to their loan, meaning they will not have to pay this amount upfront. The loan repayments will increase marginally to cover the cost of the LMI premium.
Is stamp duty and GST payable?
GST is payable on all LMI premiums and will be included in the premium quote. Stamp duty is also payable on the LMI premium and varies according to the State or Territory location of the security property. Where applicable, this amount will be included in the premium quote.
Do first homebuyers receive a discount on the LMI premium?
Yes, typically first homebuyers will be able to take advantage of a discounted premium. Arrangements may vary, so please speak to your lender or funder for details.
How can I calculate the premium payable?
Consult your rate card, lender or funder for precise information regarding LMI premium rates. A basic LMI Premium Estimator is available on our website, which also highlights the monthly cost should a borrower choose to capitalise their LMI premium.
Do you have a Servicing Calculator?
Yes, Genworth has a range of options to suit your needs. An interactive Servicing Estimator is available on our website and can be used on mobile devices. There is also a downloadable excel Serviceability Calculator which provides the required servicing calculation to submit with LMI proposals.
What does capitalisation mean?
Most lenders offer the option for borrowers to 'capitalise' the LMI premium This means that the premium is added onto the loan amount and the borrower does not have to pay for the LMI premium as a 'lump sum' cost at the time of purchase. The loan repayments will increase marginally to cover the cost of the LMI premium.
Is the LMI premium refundable if the loan is repaid early?
A partial refund of the LM premium may be applicable if the loan is repaid within the first two years.
Please note that no refund is payable where separate arrangements are in place with the lender for a reduced premium rate in lieu of taking premium refunds.
Other conditions may apply. Please ask your lender of funder for further details.
Where do I go if I have questions?
Contact your Genworth Relationship Manager, or alternatively email us at email@example.com