Lenders Mortgage Insurance [What You Need To Know about LMI] | Jabar Post Indonesia/a> – This time JabarPost.Net will discuss about Mortgage.
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Lenders Mortgage Insurance [What You Need To Know about LMI] | Jabar Post Indonesia
A mortgage loan or, simply, mortgage (/ˈmɔːrɡɪdʒ/) is used either by purchasers of real property to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged. The loan is “secured” on the borrower’s property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property (“foreclosure” or “repossession”) to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning “death pledge” and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as “a borrower giving consideration in the form of a collateral for a benefit (loan)”.
Mortgage borrowers can be individuals mortgaging their home or they can be businesses mortgaging commercial property (for example, their own business premises, residential property let to tenants, or an investment portfolio). The lender will typically be a financial institution, such as a bank, credit union or building society, depending on the country concerned, and the loan arrangements can be made either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably. The lender’s rights over the secured property take priority over the borrower’s other creditors, which means that if the borrower becomes bankrupt or insolvent, the other creditors will only be repaid the debts owed to them from a sale of the secured property if the mortgage lender is repaid in full first.
In many jurisdictions, it is normal for home purchases to be funded by a mortgage loan. Few individuals have enough savings or liquid funds to enable them to purchase property outright. In countries where the demand for home ownership is highest, strong domestic markets for mortgages have developed. Mortgages can either be funded through the banking sector (that is, through short-term deposits) or through the capital markets through a process called “securitization”, which converts pools of mortgages into fungible bonds that can be sold to investors in small denominations.
Lender’s mortgage insurance is a condition of home loan borrowing where your mortgage lender may require you to make a one-off payment to protect them (the lender) against the event where you (the borrower) might fail to make your home loan repayments.
Try the LMI Calculator https://www.huntergalloway.com.au/lmi-calculator/
Many people believe that lender’s mortgage insurance is designed to protect the borrower in case of loan default – which is actually mortgage protection insurance, a different product entirely. The true purpose of LMI is to protect the lender. This article explains lender’s mortgage insurance or LMI in more detail.
What is Lender’s Mortgage Insurance (LMI) and how does it work?
Lender’s mortgage insurance is an insurance policy that protects the lender from financial loss if the borrower can’t afford to meet their home loan repayments.
Under the terms that are included in most LMI policies, a financial institution can make a claim if the borrower defaults on the loan, and the sale of the property doesn’t equal the value of the mortgage. It might seem that there is a benefit to the borrower from LMI, but by reducing the risk to the lender, LMI allows them to lend larger amounts and approve more home loan applications.
Lenders mortgage insurance is applied directly to your home loan when it applies, so it’s not technically an upfront fee – but you still pay for it. How do you know if LMI applies to you?
When is lenders mortgage insurance required?
Generally a lender will require you to pay for a lender’s mortgage insurance policy if your home loan deposit is less than 20% of the total value of your property – however individual lenders may require more or less than a 20% deposit in order to avoid paying LMI.
This means that if you’re looking to avoid paying LMI, you may be better off not entering the housing market just yet, and waiting for a few years (or however long it takes) for you to save the 20% deposit required to avoid paying LMI.
What affects the cost of lender’s mortgage loan insurance?
There are a few things that affect the cost of LMI. These include:
The size of the loan you want
The amount of deposit you have
Whether the property is for investment or to live in
Are you a full-time or casual employee?
The insurer used by the financial institution
1. The size of loan you want
The greater the amount of money you are borrowing, the greater the potential loss of the financial institution in the event that you default. Hence the bigger your loan, the higher the cost of insuring against it.
2. The amount of deposit you have
Canstar research has found the deposit you can raise will impact the interest rate offered to you by the bank, but it will also affect how much LMI you have to pay, if any.
A number of home loan products and providers will lend up to 95% of the property value, whereas standard home loans typically require a deposit of 20%, and low doc home loans may require a deposit between 20% and 40% of the property’s value. There are even a very small number of no deposit home loan products out there.
The smaller the deposit you have though, the higher the cost of LMI. For more information on how your deposit affects interest rates and LMI costs for first home buyers, read this article.
3. Whether the property is for investment or to live in
Not all financial institutions will differentiate between an investment and residential property purchase when it comes to LMI, but some will.
4. Full-time or casual?
Your employment status can also affect the perceived risk of lending to you, so this is another factor that might affect your LMI premium.
5. The insurer used by the financial institution
There are several providers of lenders mortgage insurance and, just like any other insurance product, premiums can differ between institutions.
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Such are some brief explanations about Lenders Mortgage Insurance [What You Need To Know about LMI].>