What is Lenders Mortgage Insurance?
You may ask why you need mortgage protection insurance, believing that it is just another expense when your money is stretched already. However, have you considered what would happen if you were to suddenly lose your income due to involuntary redundancy or incapacity such as from having an accident or falling sick? How would you serve your monthly mortgage debt? Even missing just a few payments will send you into arrears which could potentially see you in the legal system, facing repossession. It really doesn’t bear thinking about.
You may also believe that the state might help you out with meeting your mortgage commitments. But currently, to benefit from state help, you need to meet strict eligibility criteria. For example, you would be ineligible to claim for government benefits if you had savings over a certain amount. And even if you were eligible to claim assistance, the amount you would receive would be very little and in most cases not enough to cover your mortgage repayment. There would also be a waiting period before you could make a claim, meaning you could fall into arrears at this time.
With mortgage payment protection insurance you will still be able to maintain your mortgage repayments even when you are off sick or involuntarily unemployed. The mortgage protection insurance policy will start to pay you a fixed, tax free sum every month that you are unable to work or without unemployment for up to 24 months (though some policies just run for twelve months, so do check the policy features and benefits when buying your cover to ensure you have the right level for your needs). Of course, if you recover or find alternative employment within this time, then the benefit will cease.
Banks and lenders like the Lendi, Canstar and Aussie Home Loans use lender’s mortgage insurance every time a borrower’s home equity or deposit doesn’t fulfil the basic safety margin requirements. With Lenders Mortgage Insurance, a lender could give some thought to taking a risk and let you borrow the money. Instead of saying no to you, they would go for mortgage insurance protection against possible financial losses.
Banking companies normally gather mortgage insurance plan premium for home loans with a value of 80% over the purchase price tag or equity of your home. Low document loans are not covered by this rule. Banks can charge mortgage insurance for home loans which meet or exceed 60% of the property’s cost or purchase price.
Lenders Mortgage Insurance and First Residence Buyers
First time buyers and recently separated people are the standard casualties of Lenders Mortgage Insurance. Why? This is because they typically try to make modest deposits for their property purchase. If the financial institution insists that you simply save for that 20% down payment, it could take you a long time depending on your sources of income. When you produce the down payment, the prices of houses have likely soared and your 20% down payment will no longer be enough.
Together with Lenders Mortgage Insurance, you could acquire a home loan right away as opposed to waiting around right up until you put together sufficient financial savings.
Cost of Lenders Mortgage Insurance
The actual payment for Lenders Mortgage Insurance depends upon the amount of the mortgage requested, the location of the home and loan-to-value ratio (LVR). If the potential customer is viewed as a huge risk, the premium is sure to be high.
Paying for Lenders Mortgage Insurance
There is absolutely no mistake, LMI is actually a one-time cost. It is utilized when you purchase your residence or once you refinance with a huge loan-to-value ratio.
Avoiding Lenders Mortgage Insurance
Borrowers can definitely prevent forking out Lenders Mortgage Insurance by depositing 20% of the home loan amount. The same goes for the equity of your house. In addition, you will probably be asked to pay different service fees like stamp duty and government rates.
Lenders mortgage insurance may appear unnecessary but it’s not. Who knows, maybe it’s the factor that could aid you to get the home loan you want.
Finally, shop around for your mortgage insurance to get the best price on your cover. Traditionally, the high street banks and lenders have been known to sell overpriced cover whereas the independent brokers often offer substantial savings on the protection, meaning you can get the insurance and peace of mind you need at a price that suits your budget