Mortgage Insurance covers the banks, not the buyers

What is Lenders Mortgage Insurance (LMI) exactly? and why do you take it out on your loan?

 

Mortgage-costs

The number of property buyers taking out lenders’ mortgage insurance is soaring, but just who does that insure? ABC reported recently that an alarming number of borrowers do not understand that after the bank gets paid out, they could still be left hundreds and thousands of dollars in debt to the insurer, should anything go wrong.

“Many of the people who take lenders’ mortgage insurance are not clear what precisely they are covered for,” said independent bank analyst Martin North, the principal of Digital Finance Analytics.

His survey of 26,000 borrowers found less than a third knew that the policy protects the bank in a default, not the borrower. Roughly the same again are unsure. Almost half wrongly believe it protects them, and that figure is even higher for first home buyers.

“Some of them could be living with a bit of a false sense of security and, of course, until things go wrong, it’s not really tested,” he added.

Before you consider putting an offer in, make sure your finance is in order, especially your understanding of your exposure to risk such as Lenders Mortgage Insurance. Contact us today to discuss your circumstances with a broker and whether LMI is right for you.

The full article can be found on ABC news here.

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