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Lender’s mortgage insurance demystified

Lenders’ Mortgage Insurance is generally charged by your lender if you borrow more than 80% of a property’s value when taking out a home loan.


Lenders' Mortgage Insurance is generally charged by your lender if you borrow more than 80% of a property's value when taking out a home loan.

It insures the lender against any loss incurred if you default on the mortgage and the net proceeds of an enforced sale of the security property are insufficient to clear the debt. It does not cover you, the borrower.

Lender's Mortgage Insurance is often a necessary evil. In a way, it's also a help because without it you would be hard pressed to get a home loan with a deposit of less than 20%.

However, it can be anywhere from a few hundred to many thousands of dollars. That's a large chunk of money! Though you probably won't have to pay it upfront – most lenders add the cost into the home loan amount.

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.

Helpful links:

  • LMI Premium Estimator – Use this Genworth's LMI estimator to find out an indication of the LMI fee payable.
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