Lenders Mortgage Insurance (LMI) is insurance taken out on loans that are classified as higher lending risk. LMI enables borrowers who might only have a small deposit or a weaker application to still be able to buy their dream property because of the ability for a lender to utilise mortgage insurance on that application.
Historically, lenders wouldn't approve loans where the loan value ratio (LVR) was higher than 80% as it was considered too risky. The introduction of LMI means that lenders are able to approve loans up to an LVR of 95%, allowing borrowers to access funds and purchase property quicker.
Any application where the LVR is over 80% results in mortgage insurance being required. The cost of the insurance is paid by the borrower, however it is not an upfront cost, as it comes out of the loan amount. The cost of the insurance depends on how much is borrowed. Essentially, the higher the loan value ratio, the higher the mortgage insurance.