Lenders Mortgage Insurance is a one-off payment that is usually payable by a borrower who does not have a 20% deposit. There are some variations to this but these are rare.
The only benefit of Mortgage Insurance to a borrower is that it allows people who do not have 20% savings to buy whereas years ago, you had to have a 20% deposit. Not so now.
But most importantly, Mortgage Insurance is not mortgage protection insurance. It does not provide any benefit to the borrower and is only there to protect the lender if the borrower defaults on their loan.
The cost of Mortgage Insurance can be quite high – figures of more than $10,000 are not unusual – but the actual premium will be determined by a number of factors including:
* The size of the loan;
* Whether the loan is for a place to live in or for an investment property;
* The amount of deposit that you have; and
* Whether you are employed or self-employed.
The good news is that Mortgage Insurance is usually added to the loan amount and paid at settlement so it’s not something that you need to pay like a solicitor’s bill or the stamp duty.
Mortgage Insurance is a one-off cost for that loan at the time that it is taken out. It doesn’t need to be paid again unless you are increasing your loan down the track and the new loan amount is more than 80% of the updated value of the property. If this is the case, then the Mortgage Insurance can be relatively low as it is only paid on the increased amount.
However, ……. And this is important, Mortgage Insurance is not transferrable. It covers the lender and not the borrower so if you decide to refinance and the loan is greater than 80% of the value of the property, then you will pay Mortgage Insurance all over again.
All of this makes Mortgage Insurance sound like it is all bad – it protects the lender but is payable by the borrower and is not transferrable so any refinancing may invoke it all over again. So why have it?
Simply, it can be a way for borrowers to get into the housing market or upgrade to a better home without the need for a 20% deposit.