If you were not yet aware, in nearly all cases where you are looking to borrow more than 80% of a properties value, you will have to pay what is called Lenders Mortgage Insurance (LMI).
This insurance, however, doesn't actually cover you (the borrower) for anything! It is an insurance policy the mortgagee (The lender) takes out to cover themselves against any possible loss should they have to foreclose on the property and are unable to sell the property for more than the loan that was taken against it. Without mortgage insurers offering such insurance, nearly all lenders in Australia would likely require a minimum deposit of 20%!
The cost of this insurance premium has many variables that include:-
- The amount borrowed
- The percentage of deposit you are able to contribute
- The lender you apply with
- The lender's mortgage insurer
Mortgage insurance should not be confused with Mortgage Protection Insurance, which is a separate product, most commonly pushed by BankWest but readily available from a number of companies. Mortgage Protection Insurance is a separate product that will cover you for the cost of your mortgage repayments in the event you are unable to pay your mortgage for a set of approved reasons.
Australia has two main Mortgage Insurance companies in Genworth and QBE. Most lenders will use only one insurer and each insurer can have different acceptable lending guidelines. In some circumstances, a loan application may be declined by a lender who uses one insurer but accepted by another lender that uses the other. Some smaller lenders may even not even have the ability to approve an application without the approval of their insurance provider, whereas the larger lenders and major banks can often approve loans they know are within the guidelines and do not need to seek a second opinion from their insurance provider.
There are some exceptions to where borrowers can borrow more than 80% of the total value of a property or properties. We will explore these options in further posts, so check back with us here soon!