Lender’s Mortgage Insurance.
The risk that the lender will lose money rises as the
loan to valuation ratio rises. When it rises to over 80% (60% for low docs) the prudential regulators
consider that the lenders need extra protection and insurance is the most common method of protectingthe lender on your
defaulting on the home loan. The lenders then pass the cost of that insurance
onto the borrower.
The result is that for home loans over 80% of the value
of the security property a lender’s mortgage insurance premium is
usually payable. This is a once off payment (because most of the risk
that you will default is in the first few years of the home loan term.
Apart from the additional expense, if you need lenders
mortgage insurance it can make the approval process more difficult and
protracted. For instance you might receive ‘in principal’ approval from
the lender but it will be subject to further checks and testing to
receive the mortgage insurer’s approval. And because they insure people
with less equity, mortgage insurers are more careful in their
assessment of your home loan, after all they are takingthe risk rather
than the lender. Thus where a bank might accept someone who had
switched
from one job to another three months ago, the mortgage insurer might
not be prepared to.
Mortgage insurance costs cannot be given precisely as
they differ between insurers and between home loans, but this table
sets out a schedule of insurance fees from one of the major insurers -
remember that the full insurance premium you’ll pay will include a 10%
GST and stamp duty on top of that which is around the same amount.
|
Loan
|
<$300,000
|
GST
|
Total Premium including GST and
Stamp Duty (NSW)
|
>$300,000
|
GST
|
Total Premium including GST and
Stamp Duty (NSW)
|
|
|
0%
|
0.08%
|
0.008%
|
0.10%
|
0.14%
|
0.014%
|
0.17%
|
Premium usually paid by lender
|
|
66.01%
|
0.11%
|
0.011%
|
0.13%
|
0.22%
|
0.022%
|
0.27%
|
|
|
75.01%
|
0.16%
|
0.016%
|
0.19%
|
0.22%
|
0.022%
|
0.27%
|
|
|
76.01%
|
0.22%
|
0.022%
|
0.27%
|
0.28%
|
0.028%
|
0.34%
|
|
|
77.01%
|
0.22%
|
0.022%
|
0.27%
|
0.28%
|
0.028%
|
0.34%
|
|
|
78.01%
|
0.32%
|
0.032%
|
0.39%
|
0.42%
|
0.042%
|
0.51%
|
|
|
79.01%
|
0.32%
|
0.032%
|
0.39%
|
0.42%
|
0.042%
|
0.51%
|
|
|
80.01%
|
0.43%
|
0.043%
|
0.52%
|
0.57%
|
0.057%
|
0.69%
|
Premium usually paid by borrower
|
|
81.01%
|
0.43%
|
0.043%
|
0.52%
|
0.57%
|
0.057%
|
0.69%
|
|
|
82.01%
|
0.59%
|
0.059%
|
0.71%
|
0.85%
|
0.085%
|
1.03%
|
|
|
83.01%
|
0.65%
|
0.065%
|
0.79%
|
0.85%
|
0.085%
|
1.03%
|
|
|
84.01%
|
0.76%
|
0.076%
|
0.92%
|
1.07%
|
0.107%
|
1.29%
|
|
|
85.01%
|
0.81%
|
0.081%
|
0.98%
|
1.07%
|
0.107%
|
1.29%
|
|
|
86.01%
|
0.92%
|
0.092%
|
1.11%
|
1.27%
|
0.127%
|
1.54%
|
|
|
87.01%
|
0.97%
|
0.097%
|
1.17%
|
1.27%
|
0.127%
|
1.54%
|
|
|
88.01%
|
1.08%
|
0.108%
|
1.31%
|
1.50%
|
0.150%
|
1.82%
|
|
|
89.01%
|
1.13%
|
0.113%
|
1.37%
|
1.50%
|
0.150%
|
1.82%
|
|
|
90.01%
|
1.30%
|
0.130%
|
1.57%
|
NA
|
NA
|
NA
|
|
|
91.01%
|
1.35%
|
0.135%
|
1.63%
|
NA
|
NA
|
NA
|
|
|
92.01%
|
1.51%
|
0.151%
|
1.83%
|
NA
|
NA
|
NA
|
|
|
93.01%
|
1.57%
|
0.157%
|
1.90%
|
NA
|
NA
|
NA
|
|
|
94.01%
|
1.73%
|
0.173%
|
2.09%
|
NA
|
NA
|
NA
|
|
Please note this information
is indicative. You should not rely on it to make financial decisions as
the lenders mortgage insurance payable on your own property may differ
from this chart.
Note in the table that there are premiums for mortgage
insurance below loan to valuation ratios of 80%, but in most cases
lenders either do not purchase the insurance, or they purchase it and
don’t pass the costs onto their clients.
Note also that mortgage insurers tend to charge less
mortgage insurance for smaller properties. Another thing to note is
that insurers are often only prepared to go above 90% loan to valuation
ratios for owner-occupiers, presumably on the assumption that an owner
occupier is less likely to ‘walk away’ from his property if he gets
into financial trouble and/or its value falls.
Note: This discussion and the
calculations above are
general and indicative. You should ensure that any specific figures on
which you choose to rely have been checked with regard to your specific
circumstances. This cannot be done definitively except by proceeding
with a full home loan application.
|
