Borrowers should be aware that if their deposit is less than 20% of the property price they wish to purchase, they will be required to pay Lenders Mortgage insurance.
Lenders Mortgage Insurance protects the lender against the possibility that you defaults on your home loan. This was created in the mid-sixties in order to allow more people to be able to own a home as banks were unwilling to lend more than 80% because they were at risk that they would lose money if the loan was not repaid.
Very often, the fact that Lenders Mortgage Insurance is compulsory for loans over 80% LVR comes as a bit of a “surprise” to first home buyers who did not forecast this additional cost. Fortunately, in most cases, banks will allow you to add the LMI amount on top of the loan.
So you should be aware of this cost and how it is calculated.
Lenders Mortgage Insurers calculate the premium using a special chart. They generally base the cost on a percentage of the loan amount and a percentage of the loan amount divided by the property amount (LVR).
MyRate Team. Celine C.