LMI and MPI are two types of home loan insurance that are necessary for home buyers, but for very different reasons.
Learning home loan jargon can be tricky if you are entering the property market for the first time and the use of acronyms tends to make things even more unclear.
Aussie founder and Executive Chairman, John Symond says it is common for home buyers to get confused.
“There is always confusion about what is referred to as ‘mortgage protection’. Mortgage Protection Insurance (MPI) is similar to life insurance where if anything happens to the bread winner, MPI would pay out your loan. You can also take out insurance to protect your income in case of disability.”
“Lenders Mortgage Insurance (LMI) protects the lender in case a home buyer defaults on their loan.”
So in a nutshell, one protects the lender whereas the other protects the buyer.
“Countries like the UK insist that you have to take out MPI to get a home loan. Yet in Australia, nearly 80% of home owners have no life cover” says Symond.
“If something were to happen to the bread winner the house would have to be sold off which is very sad. So it is really important for home buyers to have MPI”.
“In contrast, the great thing about LMI is that it enables those of us with less than 20% deposit to actually get into home ownership, so it is also very important.”
“Yes you may have to pay a high premium but if we didn’t have LMI, no one would be able to borrow more than say 70-80% of the purchase price. Not many people today have at least 20% deposit so it is extremely helpful”.