What Lender's Mortgage Insurance threshold do banks typically require for an owner-occupied home loan?

What Lender's Mortgage Insurance threshold do banks typically require for an owner-occupied home loan?

• A. 70%
• B. 80%
• C. 90%
• D. 100%

Answer: (B)

In the context of owner-occupied home loans, banks typically require Lender's Mortgage Insurance (LMI) when the borrower’s deposit or equity in the property is less than 20% of the property's value, which corresponds to a loan-to-value (LTV) ratio of 80%. This threshold is significant because it represents a point at which lenders consider the risk associated with a lower equity position. When the LTV exceeds 80%, borrowers are likely to encounter higher risks of default since they have invested less of their own capital into the property. As a protective measure, LMI helps to mitigate the lender's risk by transferring some of the financial burden in the case of default. Therefore, the requirement for LMI at an 80% LTV ratio is a standard practice among lenders aiming to safeguard their investments while allowing borrowers with smaller deposits to enter the property market. This practice reflects a balance between enabling home ownership and managing risk, which is integral to residential lending policies.

In the context of owner-occupied home loans, banks typically require Lender's Mortgage Insurance (LMI) when the borrower’s deposit or equity in the property is less than 20% of the property's value, which corresponds to a loan-to-value (LTV) ratio of 80%. This threshold is significant because it represents a point at which lenders consider the risk associated with a lower equity position.

When the LTV exceeds 80%, borrowers are likely to encounter higher risks of default since they have invested less of their own capital into the property. As a protective measure, LMI helps to mitigate the lender's risk by transferring some of the financial burden in the case of default. Therefore, the requirement for LMI at an 80% LTV ratio is a standard practice among lenders aiming to safeguard their investments while allowing borrowers with smaller deposits to enter the property market.

This practice reflects a balance between enabling home ownership and managing risk, which is integral to residential lending policies.