What is lenders mortgage insurance
Lenders mortgage insurance (LMI) is a premium that is usually charged by your lender for borrowing more than 80% of the property value when taking a home loan.
Essentially it covers the lender in the event that there were any loss incurred if you defaulted on the mortgager. Particularly when the net proceeds of an enforced sale of the security property are insufficient to clear the debt. Mortgage insurance does not cover you, the borrower.
Lender’s Mortgage Insurance is generally unavoidable (we can look at having it waived in some cases, contact me for details) and often a necessary evil. The mortgage insurance allows you to get into the market especially when you might find it difficult to come up with a deposit of 20%.
Keep in mind it can cost anywhere from a few hundred to many thousands of dollars. That’s a large chunk of money. Some lenders will allow you to add the mortgage insurance on top of the loan, meaning it won’t come out of your back pocket.
Wondering whether you should save up a larger deposit or just pay the Lender’s Mortgage Insurance and buy now? It’s a big decision. There are a number of factors to think about, such as what price you put on being able to buy the property now and how much its value may rise between buying it now and waiting until you have a 20% deposit.
The key is to do your research. The sales history of a property and the growth trend of the relevant suburb may give you some indications of future prospects. When it comes to a major purchase like buying a property, you can’t afford not to be diligent. Of course, getting expert advice from specialists such as financial planners and mortgage brokers can also help.
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