Find out what lender's mortgage insurance is and how it could affect your home loan and what you pay back.
Lender’s mortgage insurance is something you can probably expect to pay if you’re borrowing more than 80% of a property’s purchase price.
We explain what it’s for, who arranges it and some potential ways you may be able to avoid it.
What is lender’s mortgage insurance for?
When it comes to arranging a home loan, if you have a deposit equal to or greater than 20% of a property’s purchase price, generally you won’t be asked to pay this type of insurance.
However, if a lender agrees to lend you more than 80% of the property’s purchase price, there is a higher risk that—if the loan isn’t repaid as agreed—the lender will lose money.
That’s where lender’s mortgage insurance comes in and it’s important to understand it is there to protect the lender, not the borrower, unlike some other types of insurances.
What does lender’s mortgage insurance cost?
Lender’s mortgage insurance is a one-off cost that will generally come down to the lender you choose, the loan amount, the size of the deposit you have, and the value of the property that you’re looking to buy.
The lender will generally buy the insurance, pass on the premium to you the borrower, with the cost (a non-refundable fee), typically due upon settlement.
Alternatively, it may be possible to add the lender’s mortgage insurance fee to your total home loan amount, but it’s important to note that this will increase what you owe, what you will have to pay back in interest, not to mention your minimum monthly loan repayments.
How to avoid lender’s mortgage insurance
There are some ways that you could potentially avoid lender’s mortgage insurance such as:
Try to save up a deposit that’s 20% or more of the property’s purchase price
See if a family member could act as guarantor for your home loan.
For a bit of background, going guarantor is where someone uses the equity in their own property as additional security for the loan that you’re taking out.
Guarantors generally need to be family members and there are risks involved that they and you will want to be aware of. For instance, if you can’t meet your responsibilities as a borrower, they may have to repay the loan for you.
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