What Is LMI? Understanding Lender's Mortgage Insurance

Some potential home buyers may only be concerned about how much their mortgage payments will be, without realizing some of the additional fees and payments that may be serve to inflate their monthly payments. Those who are looking to be approved for a home mortgage loan should be aware of LMI, and how a fraction of the monthly payment made include this recurring expense.

Understand more about LMI and where your monthly payments will go today.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

What is LMI?

Lenders mortgage insurance, or LMI, is a type of insurance required from Canadian lenders when taking out a home mortgage loan. Any payments made go directly to the trustee or lender. LMI payments do not have to be a particularly large amount, as on the average, $55 is paid in LMI with every $100,000 borrowed. Borrowers should be aware that rates may vary and it may be worth checking with several lenders before agreeing to a mortgage loan and all terms included.

Are You Buying a Home with a Small Down Payment?

Lenders want additional security from borrowers making a small down payment, as such borrowers are at a higher risk of defaulting on a mortgage loan. LMI payments are required when the LTV amount exceeds 80 per cent, which means that those making a large down payment of 20 per cent or more will not be subject to LMI. When it comes to LMI, be aware that premium rates may vary and homeowners may be paying 1 to 2.75 per cent of the principal of the loan. Making a larger down payment may decrease the LTV ratio, create more initial equity, and—in some cases—eliminate the need for LMI payments.

Does LMI Help Make Homeownership More Accessible?

Changing Canadian lender expectations have made it easier for borrowers to buy their first home. Lenders once were satisfied with a large down payment of 25 per cent. However, the new ideal has become 20 per cent. This still may be a considerable sum for those looking to purchase a home, and other options do exist, including those offering additional security for Canadian lenders.

Buyers in Toronto, Vancouver and other competitive markets may want to buy a home when new inventory becomes available, and may not have set aside the ideal amount for a lender to be offered the best rates. This does not mean such individuals cannot be approved for a home loan. LMI is a way for lenders to work with mortgage applicants offering a smaller down payment, while protecting their interests. LMI is a way for more qualified individuals to buy a home, even those who cannot put 20 per cent down.

Do LMI Payments Help Pay Down a Mortgage Balance?

Unfortunately, no. Lenders want additional insurance that Stony Plain borrowers will make payments on time and it has been found that those who have little equity in a property are more likely to default on mortgage loans, such as when they are underwater on a mortgage loan and struggling to make payments. Lenders want to provide themselves with more security, while still providing the opportunity for qualified individuals to be approved for a home mortgage loan. LMI payments go directly to the lender and do not help pay off the balance of a mortgage loan. LMI payments, in addition to insurance premiums, will generally need to be paid by borrowers taking out a home mortgage loan and making a down payment of less than 20 per cent. Speak with a lender to learn more about how LMI payments will be calculated and the amount needed for fees and additional costs associated with taking out a home mortgage loan.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.