Lenders Mortgage Insurance: Guiding Principles (2024)

Lenders Mortgage Insurance (LMI) has not always been well understood by bank customers. New guiding principles provide clarity and transparency on LMI.

What is Lenders Mortgage Insurance (LMI)?

Lenders Mortgage Insurance (LMI) is taken out by a lender to protect the lender against the risk of the customer not fully repaying their mortgage. When a bank makes an LMI claim, the insurer pays the bank. The customer is still liable for the remaining debt and the remaining debt may be recovered from the customer.

LMI makes the bank more likely to lend to a customer who has a small deposit but otherwise meets the loan criteria.

Key areas addressed by the new Guiding Principles:

• helping customers understand what LMI is,
• clarification that LMI protects the bank, not the customer,
• clarification that if the house is sold for less than the amount owed the customer is liable for the remaining debt,
• what information the bank will provide when a customer defaults on their loan,
• what information the bank will give the customer and insurer when an LMI claim is made, and
• what consumer protections are in place for customers when the remaining debt is being recovered.

Benefits to Customers:

The Principles set out the minimum required consumer protections in the debt recovery process (regardless of who collects the debt), and

Provides a clear understanding of:

• Lenders Mortgage Insurance,
• information customers will be given at default, and when a bank makes an LMI claim, and
• the consumer protections in the debt recovery process (including use of debt collectors and sale of debts).