What is Lender’s Mortgage Insurance?
Understanding property finance 👉5
Lender’s Mortgage Insurance (LMI) is basically an insurance policy taken out by the bank to protect themselves if you foreclose on your mortgage. If you borrow more than 80% of the property’s value, there is not a lot of leeway to cover the selling costs. The insurance policy is there to cover the bank if the selling costs go over the little bit of security you have in the property. They can make an insurance claim and receive compensation for that loss.
Therefore, if you’re taking out a loan over 80%, the risk to the bank of not getting their money back is higher, so they will want an insurance policy and they make you pay for it. It’s usually 2% of the purchase price. Thus, on a $500,000 property, you’d need to factor about $10,000 into your budget.
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