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Low Deposits And Lenders Mortgage Insurance
In the past, mortgages were only given when the borrower had a reasonable deposit. The usual minimum amount for a deposit was 20% of the cost of the property. This was done because the lower loan to value ratio resulted in a lower risk mortgage for the lender. If the borrower defaulted on the loan the lender could recover their funds by selling the property at a reduced price. However as time has gone by, some lenders have allowed people to borrow more than 80% of a property’s value. To offset the risk, lenders take out an insurance policy against the balance of the loan above 80% of the value of the property. If the borrower defaults, the lender can recover their money from the insurer as well as through selling the property. It is the borrower who pays the premium on the LMI policy. The entire premium must be paid as a lump sum when the mortgage is taken out. However, LMI is usually required on home loans for people who cannot afford to pay for a large deposit. To counter this, the LMI premium is usually allowed to be tagged on to the mortgage balance. Each lender will usually do business with a particular insurance company for their LMI products. So if you need LMI then you or your mortgage broker will not be able to choose which provider you have to pay. The lender will also apply for the LMI for you – there is no need for you to apply separately. LMI only insures the lender. This policy should not be used as a replace for other insurances needed when owning a home. The borrower receives no benefit from the LMI, except for the fact they will not need to pay for a large deposit to buy a home. Borrowers should therefore seek to protect themselves from financial distress by way of a personal insurance policy. Getting approved for LMI will not mean that you are automatically approved for a home loan. If you are buying a home you will still need to meet the lender’s normal requirements in order to be approved for the mortgage. If you are looking to take out a high loan to value mortgage on your property you should speak to a mortgage broker. They will be able to select a lender which will offer the most beneficial home loan and the cheapest LMI to suit your particular circumstances. Article Directory: http://www.articledashboard.com Seek out professional advice from an independent Mortgage Broker next time you are looking for home finance at www.moneynet.com.au/ today www.moneynet.com.au/ |
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