If you’re planning to get a home loan and doing a research on offerings of financial institutions in Australia, you may have encountered the term “Lenders Mortgage Insurance” (LMI). This offers protection to the lender in the event that the borrower can no longer pay loan repayments. This is very different from the mortgage protection insurance which offers coverage for your mortgage in case of death, sickness, disability, or unemployment.
"Lenders Mortgage Insurance" (LMI)
Protects the lender against any loss that they may incur as a result of the borrower not being able to make their loan repayments.
LMI protects the lender against any loss that they may incur as a result of the borrower not being able to make their loan repayments. It protects the lender against risk of default, therefore they will be more likely to approve the loan with this policy in place.
Usually a bank of financial institution require you to pay a 20% deposit on the property you are purchasing in order to give you a loan. However, if you don’t have 20%, you might be required to pay LMI instead, which may allow you to borrow a higher portion of the property’s purchase price.
LMI just forms a part of the lender’s policy and home loan products. So how can you choose the best deal on a home loan? Here are several things to consider:
Compare home loan rates
Financial institutions vary in the cost of their lenders mortgage insurance. Make sure to compare mortgage rates to find the one that meets your requirements and financial situation. By having a higher deposit and no requirement for LMI, might mean you can get a cheaper interest rate on your home loan. Therefore just because LMI might enable you to borrow more, this might cost you more money.
Use a home loan calculator
When comparing home loans, you can use a home loan calculator. This helps you determine the estimated amount of what you need to pay. Take note, however that the results can be used only for reference, factors such as the borrower and security types, and purpose of the loan affect the cost of annual premiums.
Know the factors that affect LMI
Lenders mortgage insurance can be based on several factors. These include the amount of loan that you need, the amount of deposit that you have, and whether it’s a residential property or as an investment. It will come down to the individual insurance company requirements and calculators when calculating how much you will be charged.
Lenders mortgage insurance can help you achieve your dream of having your own home. But before anything else, make sure to know the ins and outs of this insurance. Compare home loan rates and do your research. You can also seek advice from a professional so you can better understand the factors that can affect your lenders mortgage insurance, and home loan in general.
Do you know other tips on home loan comparison and how to compare mortgage rates in Australia? You can share your ideas in the comments section below.