Final answer:
Banks typically require Lenders Mortgage Insurance when a homebuyer pays less than a 20% down payment on a house, which corresponds to an LVR exceeding 80%. This insurance protects the lender in the event of borrower default. The overall cost of mortgages and the advantages for borrowers or lenders can also be affected by mortgage interest rates and inflation levels.
Step-by-step explanation:
Banks generally seek Lenders Mortgage Insurance (LMI) when the Loan to Value Ratio (LVR) exceeds 80% for an owner-occupied home loan. This typically means when a homebuyer pays less than a 20% down payment on the property's purchase price. LMI serves as a protection for lenders in case the borrower is unable to make payments and defaults on the loan. As homeownership is a long-term commitment, ensuring the ability to maintain payments is crucial for both the lender and borrower.
To put this into perspective, if a house is bought for $100,000 with a 20% down payment, the buyer would pay $20,000 upfront and borrow the remaining $80,000. If the down payment is less than 20%, LMI would most likely be required, increasing the overall cost of the mortgage over time.
Another aspect to consider is the environment of the mortgage market, where rates and inflation can influence whether it's more advantageous to be a borrower or a lender in different years. This can be assessed by comparing the mortgage interest rates with rates of inflation for various years. Furthermore, the introduction of risky loan products like adjustable-rate mortgages (ARMs) and the securitization of loans have also had significant impacts on the economy and the mortgage system.