Understanding Lenders Mortgage Insurance?
What Is Lenders Mortgage Insurance?
For example, if the value of the home you wish to purchase is $420,000, a lender will generally want you to pay 20% of that, which is $84,000. They will then give you a home loan to cover the other 80%, which is $336,000.
However, if you’re not able to pay the $84,000 and can only afford to pay $63,000, which is only 15% the lender will have to loan you more than 80% of the value of the property.
So, to protect themselves from financial loss if the borrower can’t afford to meet their home loan repayments, lenders will require you to take out lenders mortgage insurance.
How Does Lenders Mortgage Insurance Protect the Lenders?
If you default on your loan, and the selling price doesn’t cover the entire cost of the loan, then lenders can claim from the Lenders Mortgage Insurance policy to make up the difference.
How Can A Finance Hub and Networks Mortgage Broker Help You Lenders Mortgage Insurance?
We Help At Every Stage
At Finance Hub and Networks, we gather information about your needs and suggest lenders mortgage insurance policies and products that match those needs.
We Compare The Market
We compare loans from various lenders to ensure you are getting the best deal.
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With banks clamping down on applicants with stricter lending rules, you’ll want your application to be perfect. We take care of all the paperwork!
Lenders Mortgage Insurance FAQs
Are There Different Payment Options for Lenders Mortgage Insurance?
If you have to take out LMI to secure your home loan application, you have two options. One, you can pay it upfront, or two, the cost can be added to your home loan.
It’s worth noting, though, that If the LMI amount is added to your loan, you’ll most likely have to pay interest on it.
How Much Is Lenders Mortgage Insurance?
The cost of the LMI will depend on various factors such as:
- the insurer your lender uses;
- the size of your home loan;
- your deposit amount;
- whether you’re buying the home to live in or as an investment property; and
- your employment status - i.e. if you’re a full-time employee or a casual employee.
The more money you are borrowing, the bigger the risk of loss for a financial institution if you default.
So, the bigger your loan, the more LMI you have to pay. The same would apply to the deposit amount. The smaller the deposit you have, the higher the cost of LMI.
For example, if you pay a 5% deposit on a $300,000 home, you’d roughly pay around $7,000 in LMI. Whereas, if you pay a 15% deposit on the same home, you’d probably pay around $2,000.
How To Avoid Lenders Mortgage Insurance
The most simple option would be to weigh up the pros and cons of waiting to jump into the property market and saving enough money to have at least a 20% deposit.
You can also consider high-interest savings accounts; some banks offer savings accounts specifically designed for people saving up for a home deposit.
The other option is to apply for a guarantor loan. It’s more of a risky option, but it eliminates a satisfactory amount of risk for the lender, so you’re likely to avoid LMI even with a smaller deposit.
If you’re an eligible first-home home buyer, another option is to apply for the government’s First Home Loan Deposit Scheme.
What is the First Home Loan Deposit Scheme?
The First Home Loan Deposit Scheme is an incentive offered by the Australian government to first home buyers. The government essentially acts as a guarantor to your home loan.
So, you can apply for a loan with a deposit as small as 5%, and you won’t need to pay for Lenders Mortgage Insurance if the lender approves the loan.
You’ll be eligible if you have an income of up to $125,000 or a combined income with your partner up to $200,000.
It’s worth noting, however, that the scheme is only available to 10,000 first home buyers each year, so you should check if there is availability in the year you’re thinking of buying. If not, consider waiting until the next year.
Should I Have a Finance Hub and Networks mortgage broker Help With Lenders Mortgage Insurance?
There are several ways that you can reduce the cost of lenders mortgage insurance or avoid it altogether.
So, it pays to speak to a professional Finance Hub and Networks mortgage broker so that you can get advice tailored to your circumstances.
There are many things to consider and Finance Hub and Networks mortgage brokers can help you navigate through it all.
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