Mortgage Insurance Australia, Who Pays and Who is Covered?

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You want to buy a house with a small deposit? Using mortgage insurance Australia wide, you can become a home owner, sooner. It is expensive, but you can buy your dream home and also start building your assets.

Mortgage insurance covers the lenders.

But the buyers pay for it.

If you think that the insurance will make things easier for you, in case you cannot pay your loan, think again.

It does not protect you.

It protects your bank.

You don't have any benefit.

At all.

You wouldn't take it if you had the choice. You only take it because your bank asks you to.

And if they do, it means you probably have not saved enough to come with an upfront sum. A low deposit means that the bank considers you a bigger risk than someone who has more money saved. They would think you can be late with your monthly payments and they want to be covered.


Mortgage Insurance Australia - Save More or Buy Now?

So do you have to take the mortgage cover?

If the bank asks you to, you must, otherwise you don't get the loan. But you can make the bank not ask for it.

How?

By saving for a deposit. If you can come up with at least 20% of the value of the house you shouldn't be asked to pay for lender's insurance.

This means you'll have to spend less and delay your purchase. Is it worth waiting or should you go for a home sooner?

It all depends on where you think the market will go.

  • If you think the house market is hot and getting hotter, saving for a deposit may cost you more than buying now. You may end up paying a higher price for your home when you finally manage to come with the upfront amount. Higher than the cost of the mortgage insurance.    
  • But if your gut instinct and all the property columns you are reading indicate that prices are cooling, then wait. Keep on saving. Continue to inspect homes and talking to real estate agents to get the pulse of the market in the area where you want to buy.

Mortgage Insurance Australia - When and How You Pay for It

You can be asked to pay for it when you need to borrow more than 80% of the value of the house you are buying.

In banking jargon, the loan to valuation ratio, or LVR, needs to be below 80%, for you to be a lower risk to them. A lower risk means your loan does not have to be protected with insurance. This means you don't have to pay a premium, and so, your buying costs are lower.

The mortgage insurance premium is a percentage of the loan amount and it depends on many factors.

The bank can charge it as a one off fee at the beginning of your loan or they can add it to the total loan amount.

If you can, try to pay it at the beginning. Because if they add it to the total you are actually paying interest on it so it makes it even more expensive.

While it is costly, if you didn't manage to save enough, it offers you the possibility to buy a house with a very small deposit.

If you can postpone your purchase, then save for a bigger deposit and avoid paying the premium. But if you need to buy a house now, go for it, whatever the additional cost of the loan. It is very difficult to predict what real estate prices will do, so at least you are on your way to owning your home.



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