Lenders Mortgage Insurance (LMI)
You are normally required to have at least 5 to 20 per cent as deposit for a property purchase. If you have less than 20 per cent as a deposit, don’t fret as most lenders will still be able to provide you with the finance required, if you are eligible and you have a clear credit. However, most lenders will require you to pay Lender’s Mortgage Insurance. Lenders Mortgage Insurance insures your lender against non-payment or default on your residential property loan. While it protects the lender against loss if you stop making your mortgage payments, Lender’s Mortgage Insurance also makes it possible for purchasers to buy a home with as little as a 5 per cent deposit.
How Lenders Mortgage Insurance Works
When the lenders provide you with a loan more than 80 per cent of the property value, you are most likely required to pay a once-off fee for lenders mortgage insurance to the lender. Fees vary according to the amount borrowed and the size of your deposit. You can pay the fee up-front or add it to the total loan amount (capitalize). One way to avoid the insurance costs is to save more for your deposit or seek help from family.
Costs and Benefits
In the event that a borrower default on your loan, Lender’s Mortgage Insurance will protect the lender and not the borrower. Fortunately, there are other types of insurance such as income protection insurance protects the borrower.
There are still plenty of advantages of lenders mortgage insurance to home buyers. First time buyers will benefit lenders mortgage insurance because it allows them to buy a home sooner with a smaller deposit.
In current times of rising property prices, Lender’s Mortgage Insurance allows buyers with smaller deposits to gain a foothold in the market and are able to increase their equity through capital growth of the property.