Question:

What is lenders mortgage insurance (LMI)?

Answer:

Lenders mortgage insurance (LMI) is the worldwide equivalent of the private mortgage insurance (PMI) in the US. This is the insurance protecting lenders from borrowers default and is required any time the borrower cannot make at least 20% down payment. It guarantees that the lender will receive their funds in case borrowers default.

The lenders mortgage insurance (LMI) is paid upfront and with the PITI monthly payment. Once 20% equity is reached, LMI is no longer needed and the borrower may request that the lenders mortgage insurance (LMI) is cancelled. Otherwise, the lender is required to cancel LMI once 22% equity is reached.

Equity is increased by making mortgage payments, through house appreciation and a combination of both.

Currently, lenders mortgage insurance (LMI) is tax-deductible to households with income up to $109,000 through 2010. For other borrowers, avoiding lenders mortgage insurance (LMI) is possible with providing a 20% down payment, or using a combo loan - 80/20, 80/10/10, or 80/15/5, where the difference between the down payment and the 20% requirement is covered by a second mortgage or home equity loan or line of credit.

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