Glossary
Lenders mortgage insurance (LMI)
Insurance the borrower pays for that protects the lender, not the borrower, where the loan is a high proportion of the property value.
In plain English
Where a mortgage exceeds a threshold proportion of the property value, a lender will commonly require mortgage insurance. The borrower pays the premium, usually as a one-off cost that can be added to the loan, and the cover protects the lender against loss if the property is sold for less than the debt.
It is regularly misunderstood as protecting the borrower. It does not. If the property is sold at a shortfall, the insurer pays the lender and can then pursue the borrower for what it paid out. Some borrowers and some professions are offered facilities where the requirement is reduced or waived, and the terms of that vary by lender and change over time.
Why a lender cares
The premium rises steeply as the loan proportion climbs, so the difference between two loan sizes either side of a threshold can be far larger than the extra borrowing. Where a waiver is available it is worth understanding what it is conditional on, because it is a lending concession rather than a right, and it can be withdrawn.
Reading up because a deal or a facility is on the table? One call with Nick gets you a straight read on your numbers, free.
Book a call