Mortgage Insurance, or Lenders Mortgage Insurance, is generally payable by those who have an initial deposit of less than 20% of the total value of the loan. While this can be seen as an extra cost on top of the bank loan, it can also help people achieve the dream of home ownership earlier.
By protecting their loans, Lenders Mortgage Insurance from some lenders can allow you to borrow up to 95% of the purchase price of your home, with a lower deposit than is usually required.
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Traditionally, lenders require borrowers to have at least a 20% deposit. However by using Lenders Mortgage Insurance, lenders can offer lower deposit home loans. Lenders Mortgage Insurance protects the lender if a borrower is unable to meet their mortgage repayments.
Genworth, one of Australia’s largest Lenders’ Mortgage Insurance providers, has generated some ballpark calculations for the cost of Mortgage Insurance for a first home borrower in NSW, based on different deposit amounts. It also has an LMI calculator to narrow down the cost based on your finances.
Cost of Property | Cost of Lenders’ Mortgage Insurance | | 5% deposit | 10% deposit | 15% deposit
$400,000 | $12,852 | $6,474 | $3,613
$500,000 | $16,065 | $8,092 | $4,516
$600,000 | $25,918 | $12,304 | $6,722
$700,000 | $30,238 | $14,355 | $7,842
^Quotes taken from Genworth LMI calculator, correct as at 1/1/2015
With the current low interest rates and highly active property market, many lenders are competing for your mortgage by offering loans which waive the cost of Mortgage Insurance for loans up to 85% loan to value ratio, meaning your deposit can be 15%, not the previous entry barrier of 20%.
Most importantly, be sure to speak with different lenders to ensure you get the best value mortgage for you.