When you do not have the funds available to pay a hefty deposit on a home, you may have difficulty obtaining a home loan. Lenders need protection in case you default on your mortgage, and the deposit helps to limit their liability. Luckily, you do not always need to make a large deposit to purchase your dream home.
Lender’s mortgage insurance provides a way for potential homeowners to purchase a home when they do not have the money for a significant down payment. Here is a fantastic insight into what Lenders Mortgage Insurance is.
What Is Lender’s Mortgage Insurance?
Lender’s mortgage insurance (LMI) protects lenders when giving out a loan to an individual who does not have the money for a large initial deposit. Typically, lenders will require LMI if the borrower is attempting to obtain a loan that is more than 80% of the purchase price of the home.
With LMI, you may be able to borrow closer to 95% of the purchase price. The LMI is either paid in full when settling the home loan, or it is added to the loan and paid with the monthly home loan repayments. Lendi offer a great tool to help.
What Are the Benefits of Lender’s Mortgage Insurance?
Lender’s mortgage insurance benefits both the borrower and the lender. However, it is primarily meant as a way for lenders to protect themselves. When you do not have as much money for a deposit on a new home, you are at higher risk of defaulting on your repayments. The LMI gives lenders protection. NSW Government have information if you have previously had LMI
While the LMI primarily benefits the lender, it also provides potential homebuyers in Australia with an option for obtaining the homes that they want. If you believe that you can handle the monthly repayments for a home loan but do not have the funds for a 20% deposit, the lender’s mortgage insurance may be your only option for getting the loan approved.
The bottom line is that LMI gives borrowers more flexibility to find the perfect home. You are not limited by the amount that you have available for a deposit.
How Is Lender’s Mortgage Insurance Calculated?
The exact fee that a lender charges for LMI can vary. Lenders have their requirements for calculating this fee. The cost may depend on whether the property is owner-occupied if it is a property investment, and where the property is located, along with other details.
The amount that you may need to pay for LMI will also depend on the amount of your deposit and the market value of the property. The more you need to borrow in relation to the value of the property and your deposit, the higher the LMI that you need to pay.
If you have an estimate for the value of the property that you want to purchase and know much you have available for a deposit, you can use an LMI calculator to estimate this fee. You will also need to select the location of the property, such as Victoria or New South Wales.
Before you apply for a home loan with a limited deposit, you should use the LMI calculator to estimate your LMI fee.