Why Do You Need Mortgage Insurance?
For many homeowners, owning mortgage insurance will be part of their home loan terms. Many lenders require that borrowers take out lenders mortgage insurance when they take out a new home loan. Lenders mortgage insurance was designed to ensure that if the borrower defaults on their loan the lender will be protected.
What you need to know about lenders mortgage insurance
LMI is not always a requirement- Not all lenders require LMI. However, many do request that the borrower take it out if: they borrow more than 80% of the value of the home, if the loan is considered to be high-risk because of prior credit history problems, or the borrower is unable to provide strong evidence of their ability to repay the loan. Although LMI is not always a requirement, there are situations in which not agreeing to purchase it will cause your loan to be rejected.
LMI covers the lender and not the borrower- Borrowers can not look to LMI for help in paying their mortgage. Although the borrower pays for LMI from the time that they enter into the loan agreement, lenders mortgage insurance does not provide coverage for them if they default.
LMI is refundable- Lenders mortgage insurance can be refunded, in part, if you pay off your home loan early, typically within 12 to 24 months. You will need to contact your lender and request the refund, and not the insurance company.
Owning mortgage insurance provides several benefits including:
Satisfying the outstanding balance on your mortgage if you default- Although lenders mortgage insurance is designed to protect lenders, you as the borrower are protected as well. If the insurance companies did not provide coverage in the case of default, the lenders would be able to personally come after the borrowers themselves.
Making homeownership affordable-Paying insurance to cover the lender may seem ludicrous, but the existence of LMI guarantees that owning a home is affordable. If lenders were not able to recoup their losses then they would have to add those costs into the price of the loan or not loan money at all, effectively eliminating the possibility of homeownership for most individuals.
If you will need to pay for lenders mortgage insurance you should get a copy of the policy before purchase, read it thoroughly, and seek professional advice if you have any questions.
What you need to know about lenders mortgage insurance
LMI is not always a requirement- Not all lenders require LMI. However, many do request that the borrower take it out if: they borrow more than 80% of the value of the home, if the loan is considered to be high-risk because of prior credit history problems, or the borrower is unable to provide strong evidence of their ability to repay the loan. Although LMI is not always a requirement, there are situations in which not agreeing to purchase it will cause your loan to be rejected.
LMI covers the lender and not the borrower- Borrowers can not look to LMI for help in paying their mortgage. Although the borrower pays for LMI from the time that they enter into the loan agreement, lenders mortgage insurance does not provide coverage for them if they default.
LMI is refundable- Lenders mortgage insurance can be refunded, in part, if you pay off your home loan early, typically within 12 to 24 months. You will need to contact your lender and request the refund, and not the insurance company.
Owning mortgage insurance provides several benefits including:
Satisfying the outstanding balance on your mortgage if you default- Although lenders mortgage insurance is designed to protect lenders, you as the borrower are protected as well. If the insurance companies did not provide coverage in the case of default, the lenders would be able to personally come after the borrowers themselves.
Making homeownership affordable-Paying insurance to cover the lender may seem ludicrous, but the existence of LMI guarantees that owning a home is affordable. If lenders were not able to recoup their losses then they would have to add those costs into the price of the loan or not loan money at all, effectively eliminating the possibility of homeownership for most individuals.
If you will need to pay for lenders mortgage insurance you should get a copy of the policy before purchase, read it thoroughly, and seek professional advice if you have any questions.
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