Mortgage Lender’s Insurance
If you plan to borrow more than 80% of a property’s value, it’s likely that you will have to pay lender’s mortgage insurance. Often this insurance fee is a one off payment at the beginning of your loan term. This insurance covers the lender in the case of a loan default. If you can no longer make repayments, the insurance covers the gap between the money from the sale of the property and the remainder of the loan.
While it may seem annoying to pay an insurance fee for something that does not protect you, there are a number of positives. Because lenders don’t have to worry about uncovered risks, they are able to lend you more than 80% of a property’s value. This allows homebuyers to get a loan earlier than having to save up the full 20% deposit. It also means that you maybe able to borrower more than you thought. If you have a 20% deposit for a certain property value, you could instead get a better, more expensive property and just put down a lower deposit. Some lenders even allow certain people (doctors, lawyers etc) to get no deposit home loans without mortgage insurance.
