when do i have to pay mortgage insurance?
Great question. Mortgage insurance covers the lender against the risk of you possibly defaulting. It is applicable to different people in different circumstances.
For example, a discharged bankrupt may always be required to pay mortgage insurance as they are seen as a bigger risk. Whereas a doctor may not be required to pay mortgage insurance until they exceed 95% value of the property as they are perceived as low risk.
Happy to discuss this further offline about your individual circumstance.
Rebecca A Mitchell
Awesome Lending Solutions
Joe. Hi. Thanks for your question. I could outline three types of scenarios. Firstly, it is important to understand that it is the Lender who becomes protected by the "insurance". The cost of the premium is passed to yourself.
1) prime loans. This is where you have a fully documented loan, either PAYG or self employed and can demonstrate your servicing capacity. In this instance you would pay mortgage insurance once your Loan to Value (LVR) ratio exceeds 80%. I have however seen some lenders extend this to 85% in certain scenarios, or even 90% if you happen to be employed as a professional medical practitioner (or equivalent)
2) The second scenario is for self employed people who are not able to produce full financials and tax returns. In this instance you may be relying on your Business Activity Statements combined with a self declared income amount. If this is the case you would pay Lenders Mortgage Insurance (LMI) when the LVR exceeds 60%
3) The third category is if you may not be in the prime lending space, ie you may have an impairment on your credit file.
In these instances it may still be possible to obtain a loan, however you would be subject to a "Risk Fee" on the entire amount of the loan regardless of LVR. Risk Fees often run in the order of 0.75% to 1.50%. A risk fee provides a Lender with the same protection as LMI
Please give me a call if more info is required.
1300 Ask Ken
Hi Joe, generally speaking once a loan is for over 80% of the property value.
There as many exceptions and differences depending on your situation, the lender and property type. But over 80% is the first place to start.