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What is mortgage lenders insurance? This type of insurance comes about when the mortgage provider loans more money than 80% of the value of the property, usually a house for most people. The reason for this is that if someone defaults on the mortgage (unable to pay the monthly repayments) the lender (usually a bank) has to take ownership of the property and sell it of to retrieve back the amount that they loaned. It is risky for a mortgage lender to loan 100% as the property may go down in value or there are not many buyers in the market so the price may go down also, so they lend 80% and if someone wants anymore money than that then they must pay the mortgage lenders insurance, usually the cost of the insurance is added on top of the amount of money loaned, it becomes part of your mortgage.
How much do you have to pay for mortgage lenders insurance? The amount depends upon the provider and the value of the property you are purchasing, however for a rough guide in Australia if the value of the property is around $500, 000 then you will be looking to pay around $10,000 to $15,000 for the insurance. So this insurance amount will go on top of your loan and you would have a $501,500 loan instead, be aware that you will be paying more interest also because of the mortgage insurance.
Some people do not mind this extra amount of money (the insurance) on top of the value as it enables them to purchase the property with no money down (zero deposit), this has it's advantages if you are planning to rent out the property or renovate it to increase the value, as the amount paid on insurance will be gained back with the sale of the property. Some people have no choice and are willing to pay the mortgage lenders insurance cost just to get the property of their dreams or a suitable property for their family.
The best method to avoid paying the insurance is to make sure you have saved around 20% of the value of the properties in the area you are interested, get an idea of how much you are willing to pay and make sure you have that 20% available when it comes time to ask the bank for a mortgage loan.
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