The cost of the LMI is charged as either extra interest or an additional one-off charge, on top of your mortgage.
LMI may be required if your home loan deposit is less than 20% of your property’s 'lender-assessed value'. This is a value based on your lender’s valuation of the property you want to purchase. Your Lender is required to disclose the amount and % of your LMI in your loan approval before you accept the loan and proceed with the loan.
The purpose of LMI is to protect your mortgage lender against potential financial loss. If you cannot meet your loan repayments and are unable to come to an agreement with your lender, your property may need to be sold to cover the amount outstanding on your home loan. In some instances, the property is sold for less than the amount you still owe on your home loan, in which case your lender can make a claim with the LMI provider for the money it lost.
In this case, your lender may claim the shortfall from the LMI provider. This doesn’t mean that your debt is absolved. It’s important to note that you’ll still owe the shortfall amount, but you may have to repay that money to the insurer, rather than your original lender.
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