If you’re looking to secure your first home loan. you may not be aware that, unless you have a high deposit, you will have to take out lenders mortgage insurance. This is a form of protection a lender takes out to stop them losing money if you cannot pay your home loan back.
Lenders mortgage insurance is usually charged as a one-off payment within your loan amount – for instance, if you are borrowing $400,000 and your insurance premium is $3,000, you will actually receive $397,000 towards the purchase of your home once your insurance is deducted.
You may also be able get your mortgage insurance capitalised, meaning you can borrow the full amount you applied for and have the lender add your insurance premium on top – however, you will usually need a deposit closer to 20% of your property price to do this. If you have a deposit of over 20%, or you are getting a family member to go guarantor on your loan, you may not have to take out lenders mortgage insurance.
Your lender will decide your insurance premium based on the price of your property and
the size of your deposit. If you have a 20% deposit but you are buying a $1 million property, your premium will be relatively high, whereas a 20% deposit on a $450,000 home would attract a much lower premium. If you have a smaller percentage deposit, say 90 or 95%, your premiums will also be higher.
However, there is no set rate for premiums across the board – different insurers will charge different amounts, so it’s important to shop around. When you’re deciding on a mortgage lender initially, you should factor the prices of their lenders mortgage insurance premiums into your decision, because lenders generally have agreements with one or two set insurance providers, meaning you won’t be able to change your insurance provider once you’ve settled on a mortgage lender .
If you’re not sure about how to compare lenders mortgage insurance premiums, mortgage brokers may be able to help. As your dedicated financial partner, a Choice Home Loans broker will talk you through the premium assessment process and help you to find the best rate possible for your circumstances. Make an appointment online today to speak to one of our knowledgeable staff.