What You Need to Know About LMI

Posted by Justin Havre on Friday, May 18th, 2018 at 8:42am.

What Mortgage Borrowers Need to Know About LMIMost potential homeowners need to obtain a home mortgage loan to purchase a home. There are many fees that come with purchasing and owning a home but one that may surprise some in LMI. When it comes time to calculate those mortgage payment, do not forget the monthly payment going toward LMI. Those making small down payments often have to account for LMI.

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

What Is LMI?

Lenders mortgage insurance (LMI) and applying for home loans often go hand-in-hand. Many mortgage lenders require an applicant get this type of insurance when they want a mortgage loan. Payments are made out to the lender or trustee. How much may homeowners pay when it comes to LMI? On average, for every $100,000 borrowed, a homeowner will pay another $55 toward LMI. Rates may vary in a particular area and by lender.

Homeowners who make a small down payment will need to budget for these additional payments. Lenders want LMI payments when the LTV amount is in excess of 80 per cent. More on such requirements can be found in The Bank Act. Depending on LTV, premium rates may change and homeowners may be required to pay anywhere from 1 to 2.75 per cent of the loan principal. Those who prefer not to be locked into making LMI payment may want to make a larger down payment which would decrease the LTV ratio and build more initial equity in a home.

Good News for Homebuyers

A large down payment that satisfied lenders was once 25 per cent. This amount has fallen 5 per cent in recent years and now the ideal mortgage borrower should be putting down 20 per cent. With a competitive market and high housing prices, it may difficult for the average potential homebuyer to put away this sum. This does not mean that they cannot buy a home. Lenders do prefer borrowers to be able to make a larger down payment and those borrowers may get the best rates. Lenders do work with those making a small down payment and LMI is created to offer protection for lenders where borrowers do not have much equity in a home and may be more likely to default on a mortgage loan.

LMI makes homeownership in Drake Landing a possibility for more Canadians, according to a CHMC chief financial officer. The average homebuyer should be aware of how LMI works and the LMI amount to include when they budget for their expenses.

Where Do LMI Payments Go?

Lenders want a borrower to make timely mortgage payments. It has been found that those who make a small down payment and have little equity in their home will be more likely to walk away from a mortgage loan if struggling to continue making payments. Lenders want the extra assurance provided by LMI. The lender receives the payments directly. Homeowner should know that no additional home equity is created by making LMI payments. Borrowers need to also pay insurance premiums in addition to those monthly LMI payments. Borrowers may choose to pay it as a lump sum payment or have the amount included in monthly payments.

Understand LMI

Canadians can buy a home with only 5 per cent down. However, LMI will be calculated based on the type of mortgage and the down payment amount. Approved Canadian applicants can purchase a home with a mere 5 per cent down payment. Speak to a lender from companies such as CMHC, Genworth and Canada Guaranty to learn more about LMI.

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

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