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Lenders Mortgage Insurance – Who Does It Cover?
Does Lenders Mortgage Insurance cover me?
Lenders Mortgage Insurance also known as LMI is an insurance that is obtained when a mortgage in Australia is taken out. It is an insurance that covers the Lender ONLY. Many people are under the impression that if they are the one paying for the premium that it will protect them. This is not the case.
People also believe that the ‘Lender’ is pocketing large amounts of the money off the insurance premium. This is also untrue- it all gets handed over to the ‘Mortgage Insurer’, and it is them who determine what the premiums are not the Lender.
When do I pay LMI?
The easiest way of understanding LMI is to remember that it is ALWAYS paid. The difference is when you borrow over 80% (full doc loans) you then become a ‘higher risk’ and therefore you must pay the premium. Under 80% the lender pays it out of their own pocket.
If you have a small deposit of 5% or No deposit then you will be paying 1000’s in LMI. This is because you’re seen as a ‘big risk' and more likely to default on your loan then someone who managed to save a 20% deposit.
With some lenders you are able to cap or ‘add’ the LMI premium onto your loan. So you will still need to pay, but it then becomes part of your mortgage repayments each month. Try to pay the premium off in the first year, by always putting extra into your mortgage, because if you take 30 years that $5000 could turn into $12,500 more then double what you originally paid.
Final words
It is often near impossible for a First Home Buyer to come up with 20% deposit, plus the money for all the fees. Our suggestion is keep saving, because the more you can put down for a deposit, the less you premium will be.
Additionally, you will need to consider taking out your own insurance, for house, contents, and even income loss to cover yourself. This is nothing to do with your mortgage though.
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Did You Know?
If you would like to know how much LMI you need to pay, then speak to Lending Hand Finance.
Contact Lending Hand Finance on
1300 850 545 or
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