Resources

Lenders Mortgage Insurance

If you’re having difficulty saving up the required deposit for a home loan, Lenders Mortgage Insurance (LMI) can help you secure a mortgage.

What is Lenders Mortgage Insurance (LMI)?

When taking out a mortgage for a new property, the expected deposit is 20% of the purchase price. As median house prices in Australia rise above $600,000, saving a deposit of as much as $120,000 can seem like an impossible task for many.

With Lenders Mortgage Insurance, you may be able to borrow a higher portion of the property price, allowing you to purchase your new home sooner – and with a smaller deposit than would otherwise be required.

LMI is a one-off insurance policy that Teachers Mutual Bank takes out to protect itself against the risk should you (the borrower) default on your loan repayments and the Bank is unable to recover the full outstanding amount of the loan.

By reducing the Bank’s risk, Lenders Mortgage Insurance could help you purchase your dream home with as little as 5% of the purchase price.

• Note: Lenders Mortgage Insurance should not be confused with Mortgage Protection Insurance, which is a separate insurance policy that protects you if you are unable to make repayments on your loan.

Teachers Mutual Bank obtains Lenders Mortgage Insurance through Helia Insurance Pty Limited ABN 60 106 974 305, our LMI provider.

Helia Insurance Pty Ltd has prepared a fact sheet that explains LMI. To obtain a copy, refer to Understand Lenders Mortgage Insurance.

Please note the family assistance feature in Helia’s LMI Fact Sheet is not available.

How does Lenders Mortgage Insurance work?

If you default on your loan, your property may need to be sold. If the money received from the sale of the property is not enough to repay your outstanding loan, Teachers Mutual Bank can make a Lenders Mortgage Insurance claim and Helia will pay Teachers Mutual Bank the shortfall.

Once a claim has been paid, you continue to be responsible for the outstanding shortfall debt. Typically, this debt is passed on to Helia by Teachers Mutual Bank and Helia may seek to recover the outstanding shortfall debt directly from you and any guarantors.

How much does Lenders Mortgage Insurance cost?

Unlike traditional insurance products, there is a one-off premium payable for LMI. Teachers Mutual Bank adds the cost of the Lenders Mortgage Insurance premium to your loan, which means you won’t have to pay this amount upfront. However, your loan repayments will increase marginally to cover the cost of the premium.

The cost of your LMI premium will depend on various factors including the size of your deposit and the type of loan you take out.

A partial refund of the Lenders Mortgage Insurance premium may be applicable if the loan is fully repaid within the first two years. You should check with Teachers Mutual Bank to find out about our refund policy and if it applies to you.

If you refinance your loan and the new lender requires Lenders Mortgage Insurance, you will need to pay a further premium.

Use the Helia premium estimator to give you an indication of the LMI premium payable.

Saving more vs Lenders Mortgage Insurance

Is it better to wait until you have a bigger deposit or take out LMI?

With housing prices on the rise, you may be eager to enter the property market sooner rather than later. If you don’t have a 20% deposit, LMI can help buy your first home now.

However, if you’re happy to wait until you’ve saved a larger deposit, it’s less likely that you’ll need to pay for LMI. Worst case scenario, your premium will be much less.

Tools and resources

Helia’s LMI Toolkit contains tools and resources that may assist you to better understand LMI, including case studies, fact sheets and videos that explain what Lenders Mortgage Insurance is and general the process of buying a home.