What you should know about lenders mortgage insurance
Tue Dec 13 12:15:00 AEDT 2016
Lenders’ mortgage insurance (LMI) is a form of insurance a lender takes out to prevent losing money if the borrower defaults on their home loan. The price of the LMI will usually be taken out of your total loan amount.
When will I have to pay lenders’ mortgage insurance?
You will likely have to pay a LMI premium if your deposit is less than 20% of the price of the property you’re purchasing. However, you should talk with your mortgage broker about whether you need to pay LMI and if it’s possible to avoid it. Don’t automatically assume you won’t have to pay it just because your deposit is more than 20%, as your lender might consider other factors when making their decision.
A lender may choose to waive the LMI if they feel you are a low-risk borrower. This means you have sufficient assets to prove that you will be able to make your repayments throughout the life of your loan.
How do I pay lenders’ mortgage insurance?
Lenders’ mortgage insurance is usually charged as a one-off payment within your loan amount. For instance, if you are borrowing $400,000 and your insurance premium is $3,000, you will actually receive $397,000 towards the purchase of your home once your insurance is deducted.
Some lenders might allow you to borrow the full amount you applied for and add your insurance premium on top. Talk with your mortgage broker about how LMI will affect your total loan amount.
What will affect my lenders’ mortgage insurance premium?
A number of different factors might affect the price of your LMI premium, including the size of your deposit, the price of your property, your other assets and debts, and your credit history.
There is no set rate for premiums – different insurers will charge different amounts, so it’s important to consider the different LMI premiums when comparing home loans.
Get the right advice
If you’re not sure about how to compare lenders’ mortgage insurance premiums, a Choice Home Loans mortgage broker can help. One of our knowledgeable mortgage brokers will talk you through the premium assessment process and help you to find the best rate possible for your circumstances.
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