Will you need to pay lenders mortgage insurance?
Taking out a home loan is a huge commitment for anyone. After all, this is a huge amount of money to be responsible for, especially as you begin to make repayments, which will last for many years into the future.
However, on the other side of the spectrum are the lenders. By fronting these huge mortgages, they're putting themselves at a huge risk, with the possibility of not getting the full amount repaid due to some complication or issue arising. This is why the usual deposit for a home mortgage is 20 per cent, in order to mitigate just how much risk lenders take on.
But sometimes it's necessary to take out a home loan without saving up the full 20 per cent deposit. While some lenders will be comfortable with lending over this threshold, you'll also be subject to lenders mortgage insurance.
What is lenders mortgage insurance?
Lenders mortgage insurance (LMI) is charged on top of home loans that have a deposit of less than 20 per cent and act as a degree of security on lenders in these situations. These funds aim to protect the interests of lenders in the event that you're unable to continue making your mortgage payments in the future.
LMI is a one-off extra charge added to your mortgage balance, rather than being something paid directly up front. The amount of the LMI will depend on your home loan size and property value, so be sure to discuss the specifics with your lender before agreeing to it.
Furthermore, you can avoid being charged LMI by simply saving up a larger deposit. Waiting until you have the full 20 per cent deposit could be a great way to help save money in the long term, especially when it comes to your long-term financial goals.
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