Mortgage Insurance - Yes or No?
Many of my clients are faced with a huge dilemma. They ask me.” Do I pay mortgage insurance and buy the property I really want, or do I hold back on my purchase to avoid paying this extra cost?”
First let me explain exactly what Mortgage Insurance is. Most people don’t know what they are actually paying for and, if it is really worth the expense.
Mortgage insurance is an upfont, once off payment by you the borrower to the lender. It is solely to protect the lender against the unlikely event of you not being able to make your loan repayments. The banks have a perceived risk level. If you borrow more than 80 per cent of the value of your property the banks see this as a higher risk transaction even if you can afford the repayments. It is for this reason they require you to pay this extra insurance.
Would I recommend my clients to pay this insurance?
YES on many occasions. Why you may ask? As it is very difficult to save a 20 per cent deposit plus stamp duty, mortgage insurance gives you the leverage to get into a home a lot quicker, as you do not need to save as much.
Another commonly asked question is how do the banks work out the premium for Mortgage Insurance? The premium is determined by a combination of factors, the dollar amount of the loan and the loan as a percentage of property value. The main disadvantage of Mortgage Insurance is definitely the cost. It is however spread over the full life of the loan therefore not significant over 30 years.