What is Mortgage Lenders Insurance and how does it work
One of the most confusing and most often asked questions about buying a home is, what is Mortgage Lenders Insurance (MLI).
Many home buyers don’t understand the insurance and until recently, banks didn’t even have to disclose the details.
So what is Mortgage Lenders Insurance? Why does it exist? And how does it benefit you?
These are all important questions we take a look at in this blog.
To help explain, in usual circumstances a home buyer is required to have a 20% deposit. However, sometimes saving a 20% deposit can be difficult and many people can not reach this by the time they want to purchase.
Lenders Mortgage Insurance (LMI) is a way to achieve home ownership sooner for borrowers that don’t have a large deposit.
So what is Lenders Mortgage Insurance?
Lenders Mortgage Insurance (LMI) is one of the ways to help you achieve homeownership sooner without having a 20% deposit.
With LMI, lenders may allow you to borrow a higher proportion of the purchase price, allowing you to purchase a property with a smaller deposit than would otherwise be required. It also means you borrow at an interest rate that is comparable to a borrower who has a larger deposit.
For example, with the Urban Money Quick Start Home Loan you can borrow up to 90% of the value of the property. Better still with the Quick Start Home Loan, 10% of the remaining purchase price can be in the form of a gift, for example if you are borrowing a property for $100,000 you can borrow $90,000, use a $10,000 from you parents or other party.
So instead of penalising you for not having a larger deposit, MLI means you can access better interest rates because risk overall financial risk is reduced.
At Urban Money, the LMI can either be paid upfront or capitalised into the loan. By capitalising the payments into the loan it means payments can be made over the life of the loan.
There are two very important things to remember when it comes to Mortgage Lenders Insurance:
- With LMI it is the lender that is the insured party, NOT you, the borrower (or any guarantor)
- LMI should not be confused with other insurances like, Mortgage Protection Insurance, or other home insurance related products
- When undertaking LMI the lending criteria becomes that of the mortgage insurer, with your loan application requiring the mortgage insurers strict approval prior to our approval.
If you are still unsure about what LMI covers simply contact us, or speak to your Urban Money Mortgage Specialist.
It is also worth noting that the GST is payable on all lenders’ mortgage insurance premiums and is included in the premium rate quoted by lenders. Subject to various State Government regulations, stamp duty may be payable on lenders’ mortgage insurance premiums. Where applicable, this amount is included in the total premium quoted.Urban Money offers and exclusive 85% lend without the requirement of LMI.Click To Tweet
To access this option buyers pay a lenders risk fee (which varies depending on the loan amount) instead of LMI. This suits applicants who may not meet the mortgage insurers strict guidelines, but still meet our lending criteria. This option is not offered by other lenders.
At Urban Money if you need LMI we can arrange it for you. We can prepare the necessary information and documentation and we will advise you whether or not your loan requires LMI, the cost of the insurance and any additional information that may be required.
Find out more about our home loan range and what amount can you borrow.
Please Note: We do not provide credit advice and we encourage you to speak with a professional financial advisor when planning your financial future. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on the information, consider its appropriateness to your circumstances. Applications are subject to the our normal credit approval and suitability of the asset. Fees and conditions apply. You should seek independent, professional tax advice before making any decision based on this information.