Do you need lenders mortgage insurance?

By the resi financial blog team, 20 January 2014

Do I need Lenders Mortgage Insurance

It's no surprise that when applying for a home loan, there are a wide range of different fees and charges to be aware of. With the sheer size of the loans, having certain safeguards and other measures in place to protect both lender and borrower are essential.

One of the more common payments that many will experience is called lenders mortgage insurance (LMI). Most home loans require a deposit of 5 to 10 per cent from the borrower, with the lender then providing the remainder.

However, in the situation where a borrower needs to borrow more than 80 per cent of their property value amount, it will be necessary for them to take out LMI in order to protect the interests of the lender in the event that the home loan is defaulted.

If you're self-employed, this amount drops to 60 per cent of your overall property value due to the added inherent risks associated with the often-fluctuating nature of self-employed income.

The payment is a one off, which needs to be factored into your overall home finances. However, due to the existence of LMI, lenders could potentially offer you a home loan with a relatively small deposit.

This can come in handy in a number of situations. For example, if the home of your dreams is going up for auction and you're unable to get together the right deposit amount, there is the chance to secure a home loan with LMI attached.

However, it's always best to get in contact with a financial expert before committing to any home loan option. Discussing the various home loan products available to you is the best way to discover whether or not you need to consider LMI for your mortgage.

Categories: Home Loans, Personal Finance