The basics on Lenders Mortgage Insurance: What you need to know

There is a lot of lender risk involved when it comes to providing the public with home loans. After all, this isn't a small amount of money shared between friends – it's a large sum used to purchase the biggest asset of most people's lives.

Understandably, there is a little apprehension about lending out to everyone. There are a number of safeguards to help protect the interests of lenders, with a main one being the enforcement of Lenders Mortgage Insurance (LMI).

LMI is charged when a borrower wants to take out more than 80 per cent of a property's value as a loan. The usual road to travel is saving up at least a 20 per cent deposit before borrowing the rest as a mortgage.

However, sometimes it may be necessary to push this forward and borrow a larger amount. If you do need to borrow more than 80 per cent for your home loan, chances are you will be charged the insurance.

This is especially important in the event that, for whatever reason, a borrower is unable to make the repayments in full. Rather than leaving the lender completely out of pocket, the insurance helps to keep them up and running.

Keep in mind that LMI is a one-off payment charged on top of the loan, so there is no need to factor it into your mortgage repayments.

However, the rules surrounding LMI can vary from lender to lender, so it could be a good idea to get in contact with your home loan provider and discuss the options available to you.