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Lenders Mortgage Insurance

Heidi Armstrong from State Custodians Mortgage Company answers some questions about Lenders Mortgage Insurance and how it affects you the borrower.

Video transcript below:

Heidi Armstrong:  Hi, I am Heidi Armstrong and I am the Director at State Custodians Mortgage Company.  I’d like to share some information with you today about Lenders Mortgage Insurance.  What is it and who does it protect? 

Lenders Mortgage Insurance (LMI)
 
Well the news is it protects the lender and not you as the borrower.  It protects the lender in the event that you default on your mortgage and the lender has to sell your property and receives less for it than the outstanding loan amount.  So as you can imagine, the more you borrow or to put it in another way, the less deposit you have, the higher the risk is for the lender in the event that you don’t meet your repayments.  As a general rule all loans above 80% of the value of the property are mortgage insured.  The bad news is, you as the borrower pay this mortgage insurance premium.  
 
So what are the implications of LMI to you the borrower.  Well there is a financial implication.  If you don’t have 20% deposit, you will be having to pay a mortgage insurance premium and the higher your loan amount or the higher the loan to value ratio, the more expensive this will be for you.  
 
Approved Declined
The second implication is not well understood, so I would like to spend a bit of time on that.  It’s about whether or not your loan gets approved.  There are only two mortgage insurers in Australia – Genworth Financial and QBE and both of them have their own lending policies in relation to what loans they will approve.  So when you are in mortgage insurance territory, remember it’s not just the lender who has to approve your loan, it’s the mortgage insurer as well.  In addition, the mortgage insurer will conduct a credit enquiry against your name.  For more information about how this affects your credit report, please see our video on your credit report.  
 
If you have any more questions about mortgage insurance, then why not call a State Custodians staff member.  We deal with the mortgage insurers every day, understand their lending policies and are more than happy to help you through the process.  Thank you for watching this video.  I trust that it’s been helpful.  I am Heidi Armstrong from State Custodians and we are here to help anytime we can.
 

Visit State Custodians Mortgage Company now at www.statecustodians.com.au

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