Lenders Mortgage Insurance (LMI), also known as Private Mortgage Insurance (PMI), is insurance payable to a lender when taking out a mortgage. It is an insurance in the case that the mortgagor is not able to repay the loan, and the lender is not able to recover its costs after foreclosing the loan and selling the mortgaged property. A mortgage (Law French for dead pledge) is a device used to create a lien on real estate by contract. ... Insurance in law and economics, is a system common throughout the world used to alleviate potential financial loss by transferring risk of loss from one entity to another. ... A loan is a type of debt. ...
The LMI may be payable up front, or it may be capitalized onto the loan. This type of insurance is usually only charged if the downpayment is less than 20% of the sales price or appraised value (in other words, the LTV or Loan To Value ratio should be less than 80%). Once the principal reaches 80%, the LMI is no longer required.
Categories: Economics and finance stubs | Insurance
LendersMortgageInsurance (LMI), also known as Private MortgageInsurance (PMI), is insurance payable to a lender when taking out a mortgage.
It is an insurance in the case that the mortgagor is not able to repay the loan, and the lender is not able to recover its costs after foreclosing the loan and selling the mortgaged property.
If a borrower has less than the 20% downpayment needed to avoid a mortgageinsurance requirement, they might be able to make use of a second mortgage (sometimes referred to as a "piggy-back loan") to make up the difference.
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