Tuesday, February 22, 2005


Mortgage Insurance

If you need to borrow more than 80% of the cost of a property then most lenders will require you to take out mortgage insurance.

This protects the lender in case you default on your loan or the house is sold for less than the amount owing on the mortgage. It does not protect you the borrower. You need to take out separate mortgage protection insurance to cover your repayments if you become sick or unemployed.

The mortgage insurance premium is usually between 0.35% and 2.0% of the amount you borrow depending on the perceived risk indicated by the loan to valuation ratio (LVR). It is a one off cost and you may be entitled to a partial refund if you repay your loan early.

The premium is often added to the amount borrowed but some lenders may require an up-front payment. Because it is such a big cost it is in your best interest to save a large deposit and get below the 80% threshold.

We suggest you contact a Mortgage Broker for advice on finance and mortgage insurance. They have access to a much greater range of products and lenders than banks so you should be able to get something to suit your situation.