If you have talked to a mortgage broker about buying your first home in the Baldivis area, he or she may have recommended Lenders Mortgage Insurance (LMI). Lenders Mortgage Insurance ensures that the lender will get their money in case you default on your loan.
This way, a lender can afford the risk of a loan with only 5% for a down payment instead of the standard 20%. Since many first home buyers can’t save the 20% for a deposit, LMI has helped a lot of Australians get into their first homes.
When a homeowner can’t meet mortgage repayments, the lender forecloses on the property and sells it. The homes are often sold at a discounted rate and the lender doesn’t recover all of the money that they are owed. The lender calculates the costs associated with foreclosing and selling the property and adds them to the amount owed on the loan.
If the amount recovered is less than the amount owed, LMI pays the lender the difference. Then the insurer chases the homeowner for the shortfall.
Why Not Just Buy Mortgage Protection Insurance?
Mortgage protection insurance is always recommended but it is a different product. Mortgage Protection Insurance protects the homeowner and pays their mortgage repayments if they become disabled, injured or too sick to work. If the policyholder dies, the insurance pays off the mortgage and the home goes to the heirs of the deceased.
How Do I Know if My Loan Requires LMI?
Your mortgage broker will inform you if your loan requires LMI. They will give you the paperwork and let you know how much it costs. Sometimes, LMI is paid up front and sometimes it is rolled into the home loan.
If you are looking for a home loan, call a mortgage broker at Smartline Rockingham: (08) 9527 1800.