About two in five prospective home buyers have no understanding of what Lenders Mortgage Insurance (LMI) is, according to a recent survey by Core Data and Mortgage Choice.
In a paper, “Evolving Great Australian Dream 2018”, the firms say that 42.1% of respondents said they were not sure what LMI was, and almost third (32%) said they would need to pay it in order to get into the property market.
Further results revealed only 32.1% of prospective buyers accurately stated that LMI is designed to protect the lender if a borrower can’t repay their mortgage. Another 8.2% thought LMI protected the borrower, while 17.6% believed it protected both the borrower and the lender.
When grouped by state, Victoria (46%) had the highest proportion of buyers who did not know what LMI was, followed by Queensland (39.6%) and Western Australia (46.2%). New South Wales buyers topped the states when it came to correctly defining LMI at 34.6%.
While LMI on the surface seems like a fee to be avoided, Mortgage Choice CEO Susan Mitchell said it has the benefit of helping a buyer purchase a home with a smaller deposit, thereby allowing them to get onto the property ladder sooner rather than later.
“A buyer can choose to delay their property purchase to save a sufficient deposit, but the reality is property prices have risen consistently and the longer they delay, the more likely they are to miss an opportunity,” she added. “Ultimately, in the long run, LMI is a fairly small expense in the overall cost of purchasing a home.”