is an insurance policy that protects lenders from the risk associated with providing funds for home loans. Mortgage Insurance covers lenders in the case the borrower defaults on their home loan, it does not protect you as the borrower. Mortgage insurance has alternative names such as home-loan insurance and mortgage guarantee. The policy guarantees that the lender or alternative vested party recovers some of the funds in case of major default.
In Australia lenders are required by law to take a Mortgage Insurance Policy on any home loan where the buyer has a Loan Value Ratio (LVR) greater than 80%, read our article on What LVR means to your home loan. In a nutshell it means your deposit is less than 20% of the loan value.
Many people want to buy a home sooner rather than later, but saving the standard 20% deposit can be very difficult. First home buyers and people with low incomes sometimes have access to special programs that allow them to pay lower down payments but Mortgage Insurance would still be required in such situations. There are many reasons for paying less than 20% deposit and it is no reason to hold off entering the housing market.
Mortgage insurance rates vary according to the lender and insurers requirements and the borrower’s situation, for example if the borrower is self employed or if the property is intended as an investment. Rates range from 0.5% to over 4%, based on the perceived risk of a loan based around these factors. The higher the perceived risk, the higher the premium charged.
If you’d like to talk to a mortgage broker, obligation free, to figure out how much you can borrow or to get home loan advice call or email us today.