There are two very different types of mortgage insurance on the market – Mortgage Protection Insurance and Lenders Mortgage Insurance and understanding the difference between the two is very important.

The key difference is that Lenders Mortgage Insurance is designed to protect the lender NOT the borrower. If, for some reason you are no longer able to pay your mortgage, LMI ensures that the lender doesn’t lose any money in the process. More specifically, it kicks in in situations where borrowers default on their loan and the Lender is unable to recover the full loan amount owing, when they sell the home.

Mortgage Protection Insurance, on the other hand, is designed to protect the borrower so if you aren’t able to pay your mortgage for some reason, they will make a certain number of repayments on your behalf, with no penalty to you.

Also known as simply Mortgage Insurance or LMI, Lenders Mortgage Insurance is a requirement in situations where people borrow more than 80% of the value of the property they’re purchasing or if they are taking out a LoDoc loan. It comes in the form of a premium that is paid by you at the commencement of the loan. Often lenders will allow borrowers to capitalise the insurance premium into their loan. Not all lenders require Lenders Mortgage Insurance. Bluestone, for instance, don’t regardless of the Loan to Value ratio.

At the present time there are only two companies that offer Lenders Mortgage Insurance in Australia. They are Genworth and QBE LMI. The premium is calculated on the cost of your loan as well as the Loan to Value Ratio (LVR).

At face value, it may seem like paying for insurance cover that benefits the lender and not you, is a waste of money. The reality is different. You see, the fact that Lenders Mortgage Insurance exists means they are more willing to lend money to home owners which makes home loan ownership within reach of more people.

To find out whether you’ll need Lenders Mortgage Insurance as well as how much the insurance premium is likely to be, simply contact a Wealth Concerns mortgage broker and we’ll be happy to give you an idea of what the insurance premium is likely to be based on your individual situation.

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If you would like to discuss your specific circumstances call us on 1300 700 496 or alternatively text your name and number to 0411 320 962 and we will call you.

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