Most lenders ask borrowers for a deposit of around 20% of the home loan. With lenders mortgage insurance (LMI), however, you can borrow money with a smaller deposit. It protects lenders while helping you get your home loan approved.
How Does Lenders Mortgage Insurance Work
Lenders mortgage insurance offsets any losses the lender may suffer if the borrower can’t repay the loan. When a borrower defaults on a basic home loan, the lender will typically sell the property.
However, sometimes the proceeds from the sale are not enough to cover the losses the lender suffered. This happens when the lender adds other costs incurred while enforcing the mortgage to the cost of the loan.
Lenders mortgage insurance covers the difference. In other words, this type of insurance protects your lender from a default.
Lenders mortgage insurance is available for both owner occupied and investment home loans. This includes home loans you may use for buying your first home.
How to Quality for Lenders Mortgage Insurance
Some lenders may require LMI, while others won’t. For most lenders, however, it is a safety measure.
To qualify for lenders mortgage insurance, you need to be able to meet regular monthly repayments. The insurance provider will check this while you are in the process of securing your home loan. A home loan repayment calculator can help you to estimate your repayments.
How to Pay Lenders Mortgage Insurance
You usually pay lenders mortgage insurance as part of your home repayments. You do have the option to pay it only once, as an upfront cost. Usually, you can pay it during the settlement of the loan. It covers the lender until the end of your home loan term.
The premium for this insurance takes into account two key metrics. The first is the type of loan you request. The second key metric is the size of your deposit. Some lenders are willing to add this premium to the total loan amount. This can reduce your upfront costs significantly.
Bear in mind that General Service Tax (GST) may be payable for a lenders mortgage insurance. Most lenders include this in their quote.
How to Get a Refund on a Lenders Mortgage Insurance
You may be able to get a partial refund of the lenders mortgage insurance. To do this, you pay your loan early. A partial refund may be available in the first two years of your home loan. However, this depends on the lender and the insurance provider.
What to Do Next
With the help of a home loans professional, you can secure a mortgage that has affordable lenders mortgage insurance. We recommend that you do the following:
- Find out how much you can borrow with a loan calculator.
- Compare home loans online to lower your monthly payment.
- Live chat with one of our home loan consultants.
This information is general in nature, and you should always seek professional advice when making financial decisions.