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MORTGAGE INSURANCE |
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Mortgage insurance is not required by law but is usually required by the financier who is offering the mortgage. Regardless of your financial situation, mortgage insurance is usually required when the loan amount is greater than 80% of the value of the property you intend to purchase. Mortgage insurance covers you for missed payments over an extended period (usually over 30 days) in the result of injury, sickness or unemployment. When required, this is a once-only insurance premium and it insures the lender against loss should you default on your loan repayments and the loan balance cannot be recovered from the sale of the property. Mortgage insurance also allows for people who fall into risk categories like the elderly and blue collar workers a greater chance of obtaining a mortgage. However, if you do fall into those categories your premiums will invariably be higher. Also known as mortgage payment protection, mortgage insurance is suggested for anyone who has a standard style mortgage as it replaces your payments if you are unable to meet your mortgage due to injury or long term illness. More innovative mortgages offer payment breaks for long periods of time and may make mortgage insurance unnecessary.
Here is an article from Ninemsn May 2005 regarding mortgage insurance:
Don't be fooled by lender's mortgage insurance May 2005 Don't be fooled into thinking that lender's mortgage insurance is for your benefit. Gillian Bullock reports. When you buy a property and need to borrow at least 80 percent of its value, you are highly likely to be asked to pay a one-off insurance premium at the time of settlement. But if you are forced to default on your loan, it's not you who benefits from the insurance, but your lender. If the property has to be sold as a result of your default, lender's mortgage insurance (LMI) will cover the lender for any shortfall. There are two players in the market offering LMI — Genworth Financial and PMI. Their rates are quite similar. If you had a 20 percent deposit and were borrowing $250,000, both companies would charge a one-off premium of $800. If you only have a 10 percent deposit and borrow 90 percent, the premium jumps to just over $2800. These figures are inclusive of GST but exclude stamp duty, which can range from five percent to 10 percent of the premium, depending on which state you live in. Many lenders allow you to capitalise the cost of this insurance into your loan. Not all lenders require LMI. Bluestone, for instance, does not ask for LMI regardless of what the percentage of your property value you borrow. According to Wendy Mak, marketing manager at Genworth, the top two reasons people default are bankruptcy or a change in the borrower's domestic situation...........
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