A World First, Borrowers Mortgage Insurance (BMI)
Understanding the Difference
BMI vs LMI — What Sets Borrowers Mortgage Insurance Apart from Lenders Mortgage Insurance
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Lenders Mortgage Insurance
Lenders Mortgage Insurance : Protecting the Lender, Not the Borrower
Established in the 1980’s to support higher Loan to Valuation Ratios (LVR) by lending institutions.
Lenders mandate LMI for Borrowers who have less than a 20% deposit for a home or investment property purchase.
LMI is an insurance policy owned by the Lender and the Lender remains the beneficiary not the Borrower.
The lender recovers any shortfall on the sale of a default mortgage from the insurer.
LMI is full recourse insurance, any cost incurred by the insurer to the Lender will be recovered from the borrower.
Most low documentation loans, require LMI where the LVR is 60% or more.
The cost of LMI is circa 5%+ of the loan amount, dependent on the LVR and credit profile of the borrower.
Recently major banks have created their own insurance companies to underwrite the LMI on behalf of themselves however the cost of this LMI is even higher.
All LMI premiums are paid upfront. Some Lenders will add the premium cost to the loan (capitalised) however that increases the loan amount and in turn the repayments.
Borrowers Mortgage Insurance
Borrowers Mortgage Insurance : Designed to Protect and Empower Homebuyers
BMI is a general insurance policy under which the borrower is the sole insured. The lender is a named interested party.
In the event of a shortfall following default, BMI indemnifies the borrower directly; the borrower's own payment direction discharges what is owed to the lender.
BMI cover includes up to 6 months of Repayment Assistance (up to $5,000/month) for eligible unemployment or health/incapacity events, following a 30-day waiting period plus Shortfall Protection not included in LMI.
BMI Premiums on LVR’s of 80% or less can be paid monthly in advance.
BMI Premiums on LVR’s of more than 80%, the first 12 months paid upfront and then monthly in advance.
There is no right of recovery by the insurer against the borrower, except in cases of fraud or intentional misrepresentation.
The premium cost of BMI is circa 2% of the loan amount.
BMI does not replace statutory Hardship Arrangements between Lenders and Borrowers under the National Consumer Credit Protection Act 2010.
BMI is issued as a contract of general insurance under the Insurance Act 1973 (Cth) and complies with the Insurance Contracts Act 1984.
