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What You Need To Know About Lenders Mortgage Insurance
By Sandy Naidu | September 4, 2008
If a borrower defaults on mortgage repayments, the lender will take over the property and auction it. Assume now that the proceeds from the sale of the property is less than the loan outstanding amount. This is where Lenders Mortgage Insurance comes into play. It basically protects the lender if you default on repayments and the lender is unable to recover the entire loan amount. This insurance is required only when your deposit is less than 20%.
Lenders Mortgage Insurance is commonly misunderstood as an insurance that provides to protection to borrowers. It protects the lender but the premium has to be paid by the borrower. It is a one-off premium payment and has to be paid by the borrower at the time of taking out the loan. The amount of premium depends on the deposit amount and loan amount.
There is also a GST component and stamp duty and all this is added to the premium and charged as a one-off payment.
If you are borrowing for an investment property, then this insurance is part of your borrowing costs and is hence tax deductible.
If you repay your loan or refinance within a short period of time (usually within 24 months) then you can get at least a part of the premium back. Your lender has to help you with this but some lenders can be a bit unhelpful. In such case contact the banking ombudsman.
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